Finance 101: What Should You Know About RMDs?

Are you approaching retirement age and wondering about the mandatory withdrawals from your retirement accounts? RMDs are a crucial aspect of retirement planning that can significantly impact your financial strategy. Whether you're a seasoned investor, a recent retiree, or simply someone looking to plan for the future, understanding RMDs is essential to ensure a smooth and financially secure retirement. At some point, you’ll need to take money out of your IRA and 401(k). What should you know about these mandatory withdrawals? 

First, they’re called required minimum distributions, or RMDs.

When Do I Start Taking RMDs?

You must start taking them when you’re 73 years old, or, if you were born in 1960 or later, 75 years old. 

What to RMDs apply to?

RMDs apply to your traditional IRA and 401(k), but not your Roth IRA or Roth 401(k). 

How much do I have to take out?

The amount you take out is based on your account balance and age. But if you don’t take out the required amount each year, you could face a 25% penalty. Of course, you can withdraw more than the RMDs each year, but keep in mind that your withdrawals are taxable.  

What happens if I inherit an IRA or 401(k)?

When you inherit an IRA or 401(k), you still must take RMDs, but you typically must take out all the money within 10 years.  After you’ve started taking RMDs, you must do so by the end of each year, so, if you haven’t taken them for 2024, you may need to act quickly. And if you’ll soon be required to take RMDs, learn as much as you can about them — you’ll want to make the rightmoves at the right time.

Who can I speak to to learn more?

Mark Gerber is financial advisor at Edward Jones, 2121 41st Ave Suite 207 Capitola, CA 95010. You can reach Mark at 831-621-6184. 

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