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One of the most significant mistakes you can make when managing your retirement accounts is failing to take the full Required Minimum Distribution (RMD) by the deadline. If you miss the deadline—December 31st of each year—you may face a severe penalty, which can have a significant impact on your retirement savings.
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The penalty for failing to take your full RMD by December 31st is severe—25% of the amount you were supposed to withdraw. For example, if you were required to take $10,000 RMD but only withdrew $6,000, the penalty would be $1,000 (25% of the $4,000 you failed to withdraw).
However, the good news is that if you realize the mistake and correct it promptly, the penalty can be reduced. If you correct the mistake within a reasonable timeframe (typically by filing an amended return), the penalty is reduced to 10%. While this is still a penalty, it’s far more manageable than the original 25%.
To avoid this costly mistake, it’s crucial to stay on top of your RMD requirements. Here are a few steps you can take to ensure you don’t miss the deadline:
If you realize you’ve missed your RMD or withdrawn less than the required amount, it’s important to take corrective action immediately. Contact your plan administrator to make the necessary withdrawal and file an amended tax return if needed. By doing so quickly, you may be able to reduce the penalty from 25% to 10%.
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