This year-end mistake costs investors up to $1.7 billion annually — how to minimize the penalty

The Hidden Cost of RMDs

As the year draws to a close, many investors are aware of the looming deadline for Required Minimum Distributions (RMDs). However, few are aware of the potential costs associated with missing this deadline.

According to a recent report by CNBC ^[1], the deadline for RMDs is December 31st. Failure to meet this deadline can result in a penalty of up to $1.7 billion annually.

What are RMDs?

RMDs are a requirement for retirement account holders who have reached the age of 72. These distributions are designed to ensure that account holders do not accumulate too much wealth in their retirement accounts.

How to Minimize the Penalty

Fortunately, there are ways to minimize the penalty associated with missing the RMD deadline. One option is to take a late distribution, which can be done by filing Form 5329 with the IRS.

Another option is to use the 'deemed distribution' rule, which allows account holders to treat a portion of their RMD as a distribution from a different account.

Conclusion

Missing the RMD deadline can result in a significant penalty for investors. However, by understanding the rules and taking proactive steps, investors can minimize the cost and ensure compliance with the IRS.

Sources

[1] This year-end mistake costs investors up to $1.7 billion annually — how to minimize the penalty