5 Things You May Not Have Known About RMDs
Key PointsYou get options for taking your first RMD.
Required minimum distributions (RMDs) are mandatory withdrawals from traditional IRAs or 401(k)s starting at age 73 or 75, depending on your birth year. These withdrawals are due by Dec. 31 each year, with penalties of up to 25% if not taken on time. However, there are strategies to manage RMDs more effectively. For those born before 1960, the first RMD is due by Dec.
31 of the year they turn 73, allowing a deferral to April 1 of that year. In instances of significant capital gains, deferring the initial RMD could offer tax advantages. RMDs permit in-kind distributions, enabling transfers of stocks or ETFs to a taxable account instead of cash, avoiding immediate losses. Charitable contributions can be made via qualified charitable distributions (QCDs), satisfying RMDs without increasing tax liability, up to $111,000 for individuals.
Married couples can combine QCDs for a total of $222,000. However, if an individual works for their current employer's 401(k) and owns less than 5% of the company, they can exempt RMDs from that plan, though not from old 401(k)s or IRAs. Missing an RMD deadline still results in a penalty, but filing within two years can reduce it to 10%. Consulting a tax professional is advisable if penalties are missed.
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