"Retirees face a forced withdrawal problem many don't understand until it hits their bank account. Required Minimum Distributions mandate withdrawals from tax-deferred retirement accounts starting at age 73. The IRS treats these withdrawals as ordinary income, creating unexpected tax bills for retirees who may not need the cash. Missing the deadline carries serious consequences-a penalty that can reach 25% of what you should have withdrawn."
"The tax impact varies by bracket, but the real danger is missing the deadline entirely. The penalty for a missed RMD is 25% of the required amount, and you still face the original tax obligation when you eventually take the distribution. Acting quickly to correct mistakes can reduce that penalty to 10% if you withdraw the shortfall within two years."
"RMDs create a timing problem. You saved for decades in tax-deferred accounts, deferring taxes while working. Now the IRS wants its cut on a schedule it controls, not yours. Recent legislation has adjusted the starting age-currently 73 for most retirees, with further increases planned for younger savers. For anyone currently in their early seventies, the clock is running. The penalty structure improved significantly under SECURE 2.0 legislation."
When account holders reach age 73, the IRS requires withdrawals from traditional IRAs using life-expectancy tables. Those required minimum distributions (RMDs) are taxed as ordinary income and can create significant, sometimes unexpected tax bills. Missing the deadline triggers an excise tax — now 25% of the shortfall — plus the eventual income tax on the withdrawn amount. SECURE 2.0 reduced the previous 50% penalty and allows a 10% penalty if the shortfall is corrected within two years by filing proper forms. Forced income recognition can push retirees into higher tax brackets, so careful planning is essential.
Read at 24/7 Wall St.
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