Required minimum distributions (RMDs) aren’t optional. If you’ve reached age 73 and haven’t started taking yours, Suze Orman wants to help. In a “Women & Money” podcast episode, she outlined some of her tips on how to take RMDs from IRAs and employer-sponsored plans.
Forgetting to start taking money out of your retirement accounts might seem like a good thing. Clearly, you’re managing to get by without touching this money, which likely means your finances are solid. However, the IRS has a different idea. Not taking your RMDs can be costly, as you could be subject to an excise tax of 25% — 10% if the issue is corrected within two years.
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Don’t panic if you’re in this situation. Orman has you covered, as you’re certainly not the first person to make this mistake.
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What To Do If You Forgot Your RMD
Assuming you’re still working full time, Orman said you don’t have to take an RMD from a 401(k), 403(b) or thrift savings plan (TSP). However, this rule doesn’t apply to people who own 5% of the business sponsoring the plan or IRAs, per the IRS.
Even if you’re still working full time at age 73, you’ll generally need to start taking RMDs from your IRA, Orman said. This includes traditional IRAs and IRA-based plans. Roth IRAs and designated Roth accounts are not included in this rule while the owner is alive, but do apply to beneficiaries.
If you have a traditional IRA and forgot to take your RMD, Orman said you’ll need to fill out IRS forms as soon as possible. She also advised working with a CPA to resolve this issue, as it can be complex.
While penalties may be imposed, she said the IRS might waive them if you’re able to show reasonable cause behind this error. According to SmartAsset, there isn’t a strict consensus on what determines whether there was a reasonable error made. But the IRS notifies applicants if their waiver is denied.
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Calculating Your RMD
If you forgot to take your RMD, this probably means you haven’t yet calculated the amount you’ll need to withdraw. This might seem tricky at first, but the IRS has plenty of guidelines to assist.
RMDs must be calculated separately for each IRA you own, but you’re permitted to withdraw the total amount from one or more accounts. The same rule applies to 403(b) accounts.
This isn’t the case for other types of retirement plans, including 401(k) and 457(b) accounts. RMDs must be withdrawn from each of these accounts separately.
The IRA custodian or retirement plan administrator might provide you with an RMD calculation. However, the IRS website clearly states it’s up to you to withdraw the correct amount.
If this feels overwhelming, don’t hesitate to take Orman’s advice and contact a CPA. The fee they’ll charge could save you money in the long run — and you could avoid the added stress of trying to navigate RMDs on your own.
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This article originally appeared on GOBankingRates.com: Suze Orman: Do This If You Forget To Take Your Required Minimum Distributions
