global Tax What Happens If I Don’t Take an RMD? October 31, 2023 If you don’t take Required Minimum Distribution (RMDs) after you’ve reached the applicable age, you’ll be hit with a federal tax penalty, unless an exception applies. Read on. Did you reach the applicable age to take your first RMD from your retirement accounts? Don’t be hit with penalties for noncompliance! Here’s a look inside our whitepaper, Your Guide to Required Minimum Distributions (RMDs). What is an RMD? Your required minimum distribution is the minimum amount you must withdraw from your account each year. This applies to Individual Retirement Accounts (IRAs), SIMPLE IRAs, SEP IRAs, and other retirement accounts such as 401(K)’s. Roth IRAs do not require withdrawals until after the death of the account owner. What happens if you don’t take an RMD? The penalty for failing to take RMDs is hefty, but it’s been lowered under SECURE 2.0. Under prior law, the IRS could impose a 50% penalty on the difference between the amount you were required to take (the RMD) and the amount you withdrew for the year. Starting in 2023, the penalty has been reduced from 50% to 25% under SECURE 2.0. In addition, under current law, you may reduce the penalty to only 10% by correcting any shortfall in a timely manner (generally within two years after the year of the shortfall). Download our whitepaper, Your Guide to Required Minimum Distributions (RMDs) for more information about when you need to start taking RMDs, how much you need to withdraw, and more. Contact us to take the guesswork out of taking RMDs and for more details on what’s changed under recent legislation. We can help you comply with the rules and minimize any adverse tax consequences.
