Q. Dan, I am still 75 years old, so I don’t need to receive the minimum necessary distribution (RMD) from 401 (k) at work. However, I think it’s time to keep a distance. I know that RMD will be eligible if you retire. If you retire at the end of the year and cannot withdraw money by December 31st, how much penalties will you be imposed? – Philip of Melbourne Beach
A. Congratulations on your retirement, Philip. There are some matters to be considered, but don’t worry about paying a penalty if you can’t get the funds by the end of 2025.
Fortunately, you have a plan with the provisions you need to work while working. Only plans with appropriate languages provide that choice. Even if you work, you will not be able to get out of RMD with the IRA or other plans that are not the sponsors of the current employer or you are investing in more than 5 %.
If you retire, you will need to get RMD, so if you retire this year, you need to meet the 2025 RMD. The first RMD in 2025 is the first RMD, but it can be obtained by April 1, 2026 (this is not a mistake. This is April 1st, and the past. It is not April 15, the tax return deadline. Therefore, even if you retire on December 31, 2025, you will not be penalized by acquiring 2025 RMD by April 1, 2026.
Nevertheless, you may want to receive the 2025 RMD in 2025. This can be realized by receiving the distribution from the plan at any time in 2025. Most plans can receive distributions while using the “distribution during service” for those over 59 years old. If such a distribution is not allowed in the plan you use and you want to create a 2025 RMD in 2025, it is necessary to check whether the plan will be distributed on the end date.
Regardless of the reason for delaying RMD in 2025 until early 2026, the RMD in 2026 must be paid by December 31, 2026, so both distributions are taxed in the 2026 tax return. It will be.
RMD in 2025 is based on the account balance as of December 31, 2024 and the coefficient of the average life table according to the age as of December 31, 2025. Every year, RMD is recalculated based on December 31st. The balance between the previous year and the next age factor. For example, RMD in 2026 is based on the account balance as of December 31, 2025 and the coefficients of the average life expectancy according to the age as of December 31, 2026. It must be obtained by December 31st. RMD in 2027 will be paid by December 31, 2027 based on the balance and balance on December 31, 2026. Your age as of the end of 2027.
Should I postpone until next year? This depends on the amount of the RMD of the 2025 and 2026 tax return and all the other items. In the 2025 wage, the tax rate may be lower if the income from RMD in 2025 in the 2026 declaration is reduced. Compare the tax rate applied when you get RMD in 2025. Excellent advisors evaluate all nuances for you and perform detailed tax analysis to accurately determine how much tax will be charged. To get the best results, you need to compare RMDs in 2025 in 2025 and 2026.
If you have a question in DAN, please send an email with “MarketWatch Q & A” to the subject.
Dan Moisand is a Financial planner of Moisand Fitzgerd Tamayo, providing services to customers nationwide from Orlando, Melbourne and Florida Tampa offices. His comments are only for information provision, not a personal advice. Talk to the advisor about what is best for you. Part of the reader’s question is edited to help the theme explanation.
