That's because your initial distribution isn't due until April 1 of the year after you turn 70½ (or 72 if you’re subject to the new rules)-even though your second RMD is due on December 31 of that same year. In many ways, the first year of RMDs can be the toughest. The cost of miscalculating or failing to withdraw the full amount is steep: The IRS charges a 50% penalty on any withdrawals required but not taken. Schwab offers an online calculator to help investors estimate annual distributions. ![]() Many IRA custodians will notify account holders of their RMDs each January (though the IRS holds the account owner ultimately responsible for getting the calculations right). "When you add that income to Social Security and the required minimum distributions (RMDs) you can land in an unexpectedly high tax bracket." Keep in mind with the passage of the SECURE Act, the age for the onset of RMDs changed to 72 for retirees who turned 70½ after December 31, 2019.įortunately, a number of strategies can help reduce the impact of RMDs. How so? "Many people tap accumulated wealth outside their IRAs," says Kathy Cashatt, a Schwab senior financial planner in Phoenix. However, it's not unusual for retirees to find themselves in the same or an even higher tax bracket in retirement. The whole premise behind tax deferral is we know we’re going to have to pay income tax on this money eventually-we just want it to be less in retirement than what we'd pay during our working years. Many people who save money in traditional 401(k)s, Individual Retirement Accounts (IRAs) or other tax-deferred investment vehicles do so assuming their income-tax rate in retirement will be lower than that of their working years.
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