Question

Under the RMDs (Required Minimum Distribution) clause, what happens to investors who have not begun withdrawals from their Traditional IRAs?

Answer 1

Investors with a Traditional IRA are required to begin taking RMDs by April 1 after reaching age 72, and failure to do so can lead to a 50% tax penalty on the amount not distributed.

Step-by-step explanation:

Under the rules of Required Minimum Distributions (RMDs), investors holding a Traditional IRA must begin taking withdrawals from their account by April 1 following the year in which they turn 72. These withdrawals are mandatory and failing to take them can result in a tax penalty, which is typically 50% of the amount that should have been withdrawn but wasn’t.

RMDs ensure that the tax-deferred savings in retirement accounts such as Traditional IRAs, 401(k)s, and 403(b)s are eventually subject to taxation, as these accounts are designed to provide income during retirement, rather than serve as a vehicle for wealth transfer.