Vanguard says millions of elderly retirees are making a critical mistake that leads to tax penalties

Core Insights - A significant number of elderly investors are not taking required minimum distributions (RMDs), leading to potential tax penalties [1][8] - The IRS mandates RMDs starting at age 70.5, with penalties for non-compliance ranging from 10% to 25% of the RMD amount [2][8] Summary by Sections RMD Compliance - In 2024, 585,000 Vanguard clients with individual retirement accounts (IRAs) failed to take RMDs, representing 6.7% of RMD-age clients [3] - Among those who did not take RMDs, the average amount was $11,600, resulting in potential penalties between $1,160 and $2,900 [3] Withdrawal Patterns - 24% of clients withdrew amounts below the RMD threshold, while 69% met or exceeded the RMD level [4] - Investors with smaller account balances are more likely to miss RMD deadlines, with 56.8% of those under $5,000 failing to meet requirements [4] Penalty Insights - Average penalties for clients with account balances of at least $1 million were reported at $8,792 [5] - A concerning trend is that 55% of those who missed RMDs in one year are likely to miss them again the following year [6] Recommendations - Vanguard suggests automating distributions and consolidating retirement accounts to help investors comply with RMD rules [7][8]