When it comes to a retirement savings account, you want to keep as much of your hard-earned money as possible. To make sure you are maximizing your savings and avoiding preventable penalties, it’s important to be aware of all of the rules surrounding retirement savings accounts and withdrawals.
One important rule that many people aren’t aware of is called a Required Minimum Distribution – also known as an RMD. Understanding the ins and outs of RMDs can help you build a withdrawal plan that allows you to get the most out of your savings. It’s also critical to stay updated on the rules of RMDs, as they are not static and can change on a yearly basis.
What is an RMD?
A Required Minimum Distribution, or RMD, is the minimum dollar amount you must withdraw from your retirement savings account each year after reaching a certain age. Failing to withdraw the full amount by the IRS deadline could result in a penalty up to 50% of the original RMD. These minimum distributions apply to a wide variety of savings accounts, including:
- 401(k) plans
- 403(b) plans
- 457(b) plans
- Traditional IRAs
- SEP IRAs
- Simple IRAs
RMDs may also apply to inherited IRAs, profit-sharing plans, and other contribution plans. To see if your retirement savings account is subject to an RMD, we recommend consulting your tax professional.
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How Have RMDs Changed in 2021?
The rules of RMDs have changed slightly in 2021 by increasing the age from 70 ½ to 72 years old. That means individuals who turned 70 ½ after December 31, 2019 do not need to withdraw their RMD until they turn 72 years old.
It can feel overwhelming to navigate all of the rules surrounding RMDs, let alone calculate exactly how much you owe. That’s why we recommend turning to an experienced tax expert who can guide you through these rules so that you can make the most of your savings and enjoy your retirement stress-free.Back to Personal Loans
How Have IRA and 401(k) RMDs Changed in 2021? in Vancouver WA
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