Don't Let Your First RMD Catch You Off Guard

If you have money in a traditional IRA or 401(k), the IRS eventually requires you to start withdrawing from it, whether you need the money or not. These are called required minimum distributions, or RMDs.

Two things are worth knowing well before you get there.

First, the timing. RMDs now begin at age 73 for most people (it rises to 75 in 2033). Your first one can be delayed to April 1 of the following year, but if you delay it, you will take two RMDs in the same year, which can spike your taxable income. Often it is cleaner to take the first one on time.

Second, the penalty. Miss an RMD and the IRS can charge a stiff excise tax on the amount you should have taken. It is an expensive mistake, and an avoidable one.

The good news: RMDs are predictable. You can estimate yours years ahead using the free calculator at the SEC’s Investor.gov (https://www.investor.gov), and plan around it.

Your trusted advisor can build your RMDs into your withdrawal plan, including which accounts to draw from first, so the tax bill never surprises you.

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