How to Delay Taking Some RMDs and Reduce Taxes

Shutterstock

When it comes time to start taking required minimum distributions (RMDs), you may discover that it could put you into a higher tax bracket. RMDs can be sizable. If you are retired or getting ready to retire, you must take them when you reach a certain age.

After the SECURE 2.0 Act (setting every community up for retirement enhancement) passed, you must start taking RMDs if you have the following traditional retirement accounts:

• IRAs (individual retirement accounts)
• SEP (simplified employee pension) IRAs
• SIMPLE (savings incentive match plan for employees) IRAs
• and most other retirement accounts

Roth accounts are exempt from this requirement.

Penalties for Failure to Take RMDs

Penalties for not taking an RMD when you should can be rather expensive. Failure to make an RMD or not withdrawing the entire amount (you can take more than required), the Internal Revenue Service (IRS) says, will result in a 25 percent penalty of the RMD that you did not withdraw—unless corrected within two years, then it may be reduced to 10 percent. You will also have to pay a tax bill on the amount withdrawn.