RMDs: What You Need to Know Before the IRS Comes Calling
Managing your retirement accounts doesn’t have to feel like navigating a maze blindfolded. Required Minimum Distributions (RMDs) are the IRS’s way of saying, “Hey, it’s time to pay up!” But before you panic, here’s the good news: RMDs aren’t as scary as they sound, and with a little planning, you can handle them like a pro—and maybe even use them to your advantage.
Think of an RMD as your retirement money finally graduating. For years, your IRA or 401(k) has been growing tax-free, and now the IRS wants its share. When you hit age 73, you’re required to withdraw a specific amount each year. It’s not about draining your account—it’s about taking a portion, paying the taxes you deferred, and keeping the IRS happy. And yes, this rule applies whether you’re living in the U.S. or sipping coffee in Jerusalem.
How RMDs Are Calculated
So how’s it calculated? The IRS looks at your account’s value at the end of the previous year and divides it by a factor based on your age. Let’s say you have $1 million in your IRA, and your factor is 10. Your RMD would be $100,000. Luckily, most brokerage firms handle the math for you, but if you forget to withdraw, you could face a penalty of up to 25%. Yikes! Historically, the penalty for missing an RMD was 50%, but the SECURE Act 2.0 changed it to 25%. If you realize your mistake and promptly correct it (generally within two years), the penalty can be further reduced to 10%. However, it’s important to stay on top of your RMD schedule in order to avoid these penalties altogether. If you’re unsure about the exact amount or timing of your RMD, it’s a good idea to consult with your tax advisor.
If you inherit an IRA, the IRS has another set of rules. Typically, you have 10 years to withdraw the full amount. Spreading out the withdrawals can make the tax bite more manageable. It’s all about strategy, and knowing the rules can save you thousands.
Turn RMDs Into a Win-Win
Here’s where it gets exciting. Did you know you can donate your RMD to a qualified U.S. charity and avoid paying taxes on that amount? It’s called a Qualified Charitable Distribution (QCD), and it’s a smart way to support causes you care about while keeping the IRS out of your pocket.
One of the biggest mistakes people make is simply forgetting to take their RMD. This often happens during account transfers or when juggling multiple IRAs. Working with a financial advisor who specializes in cross-border accounts can help you stay on track and avoid costly penalties.
Disclaimer: This article is for educational purposes only and does not constitute financial, legal, or tax advice. Please consult a professional for personalized guidance.
Ready to Simplify Your RMDs?
RMDs don’t have to be stressful. Whether you’re managing your own account or dealing with an inherited IRA, expert advice can make all the difference. Schedule a call today, and let’s make sure your retirement plan is working as hard for you as you’ve worked for it. Keep your money working smarter—not harder—for your future!
