Scary Financial Mistakes: Forgetting to Take Required Minimum Distributions

Oct 20, 2021

By Theresa Fry, Senior Vice President and Manager, IRA’s, Retirement & Education Planning

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Paying taxes can be scary enough, but layer on top of that a 50% IRS tax penalty and the results can be horrifying. That’s what can happen if you forget to take your required minimum distributions (RMDs) from your retirement accounts.

When you save for retirement through IRAs or workplace retirement plans, one of the benefits you receive is tax deferral. You may also have received a tax deduction for your IRA contributions or made pre-tax contributions out of your pay to a 401(k), 403(b), 457(b) or SIMPLE plan through your employer. These are the up-front tax advantages that retirement savings accounts provide.

The tradeoff is having to take RMDs. When you reach age 72, you must begin taking withdrawals from your retirement savings accounts. Your first RMD must be taken in the year you turn age 72, or no later than April 1 of the following year. For every year after your first, RMDs must always be taken by December 31. Beneficiaries who inherit IRAs or workplace retirement plans also must take RMDs, but not all beneficiaries must take withdrawals each year.

In most circumstances, RMDs are taxable income. However, if you made after-tax or non-deductible contributions, your distribution may only be partially taxable. If you take advantage of qualified charitable distributions – direct gifts made from your IRA to an eligible charity in amounts up to $100,000 per year – they count toward your RMD but are tax free.

What happens if you forget to take your RMD or you don’t take enough? The IRS imposes a 50% tax penalty on the amount of the shortfall. For example, if your RMD amount for 2021 is $10,000 and you fail to take the distribution, you will have a $5,000 tax penalty.

This year’s RMD is based on the December 31, 2020 value of your retirement account.  The prior year-end balance is divided by a life expectancy factor. For most people, the IRS Uniform Lifetime Table is used. Beneficiaries that have inherited retirement savings accounts typically use the Single Life Table if they are subject to annual RMDs. The IRS has recently updated these life expectancy tables for use with RMDs beginning in 2022. The good news is that these new tables reflect the fact that people are living longer. The impact of a longer life expectancy is a lower RMD amount.

Last year there were no RMDs for account owners or beneficiaries because of the CARES Act. It was part of COVID-19 tax relief. However, like Jack in the horror movie “The Shining,” they’re back! Even though we are still living through the pandemic, RMDs were not waived again for 2021.

Don’t get caught making this scary financial mistake and forget to take your RMDs. Your financial advisor can help you review your retirement savings accounts and any RMDs that you have this year.


Benjamin F. Edwards does not provide tax advice; therefore, it is also important to consult with your tax professional for additional guidance tailored to your specific situation.