2. RMD Penalties
Unless you’re housing your retirement savings in a Roth IRA, you’re required to start removing a portion of your account balance each year once you turn 72. (Note that this age used to be 70 1/2, but the SECURE Act pushed it back.) That sum is known as your required minimum distribution, or RMD, and it’s calculated based on your account balance and life expectancy.
The purpose of RMDs is to ensure that you eventually draw down your entire savings balance in your lifetime rather than leave your IRA or 401(k) to your heirs. And if you don’t take your RMD, the IRS will impose a 50% penalty on whatever sum you fail to remove. For example, if your RMD one year is $5,000 and you don’t take it at all, you’ll lose $2,500, just that like.remaining.
Your first RMD is due April 1 following the year you turn 72. All subsequent RMDs are due by the close of each calendar year.
3. Health Savings Account Penalties
Health savings accounts, or HSAs, offer a great opportunity to set money aside for near- and long-term healthcare expenses. The money you put into your HSA goes in tax-free, and any funds you don’t use immediately can be invested for added growth and then withdrawn, tax-free, at any time to cover qualified medical expenses. If you remove funds from your HSA before age 65 for nonmedical purposes, however, you’ll be assessed a 20% penalty on the amount you withdraw.