Retirees: Don't Miss Your $37,736 RMD at 73, or Face 25% Penalty
At 73, retirees must start taking required minimum distributions (RMDs) from certain tax-deferred accounts. The IRS mandates this to prevent overaccumulation. For a 73-year-old with $1 million in these accounts by the end of 2024, the RMD would be approximately $37,736.
The RMD is calculated by dividing the account value by the life expectancy factor (LEF) provided by the IRS. At 73, the LEF is 26.5. This means the retiree's $1 million would be divided by 26.5 to determine the RMD. The LEF decreases each year, increasing the RMD. For instance, at 80, the LEF is 18.7, making the RMD $49,505.
The penalty for not taking RMDs is steep - 25% of the amount not withdrawn. However, this drops to 10% if the mistake is corrected within two years. In Germany around 2025, a 74-year-old's remaining life expectancy is estimated to be about 10 to 12 years.
Retirees should plan carefully to meet these annual RMDs. Failing to do so can result in significant penalties. Understanding the decreasing life expectancy factors and their impact on RMDs is crucial for retirement planning.
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