What are RMDs?: Retirement Tip #1
So how complicated can retirement actually be? Well in a post-pension world it’s actually quite complicated. In fact, 50% of retirees are afraid of running out of money in retirement: a maze of new rules to follow, 300 page books (on social security alone) to read, and a series of high consequence decisions that can’t be reversed.
First, let’s tackle RMDs. You’re probably putting savings into your retirement accounts, but most retirees are (or will be) taking money out! And Uncle Sam actually requires them to start taking money out of their retirement accounts starting at age 72 (thanks to the SECURE Act). These are called ‘required minimum distributions’, aka RMDs.
What’s so complicated about RMDs?
- You have to take RMDs out of some but not all retirement accounts. IRA, 401(k)s, Roth 401(k)s, Yes. Roth IRAs, No
- Retirement accounts may have different RMDs! RMDs are based on your age and if you aren’t using SmartDraw you need to check out these lovely tables on the IRS website! (yes, this table is exactly why we built SmartDraw)
- RMDs are found on a number of different forms, depending on who your broker is. At the year-end account statement, an RMD letter is due from your broker by January 31 or an IRS Form 5498 (sent at the end of May).
- Forget to take an RMD? The IRS imposes a 50% penalty on the unpaid amount. For a 75 year old with a $200,000 IRA, that penalty could be as much as $4,366!
Is your head spinning? Don’t worry, we’ve got you covered. SmartDraw calculates RMDs on a monthly and annual basis ensuring that Mom and Dad have 1 place to track their RMDs. And our Kindur Financial Planners can get on the phone and dive deep with your parents.
Next up: Are you thinking about moving to Florida? We’ll tackle State Income Taxes.
Kindur is a New York based financial technology company dedicated to helping Baby Boomers feel prepared moving into retirement. We provide smart, automated advice to personalize your retirement strategy so you can manage your savings with confidence. Learn more at kindur.com/gift
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