1 in 3 retirees faces an RMD tax penalty. Here's how advisors help fix it

Core Insights - The required minimum distribution (RMD) is often overlooked by clients, leading to costly tax penalties, with approximately 1 in 3 clients either missing a distribution or withdrawing insufficient amounts [1][2] Group 1: RMD Statistics - Research indicates that 6.7% of clients failed to take their RMD in 2024, while 24% withdrew less than the required amount, with an average missed RMD of $11,600, resulting in potential penalties of up to $2,900 [2] - Among clients with IRA balances over $1 million, 2.5% missed their RMDs, with an average tax penalty of nearly $8,800 for such lapses [3] Group 2: Behavioral Insights - Errors related to RMDs tend to be persistent, with 55% of clients who miss an RMD in one year likely to miss it again the following year, indicating a behavioral pattern of neglect [4] - Self-directed investors are three times more likely to miss RMDs compared to those who work with financial advisors, highlighting the value of advisory services in managing RMDs [5] Group 3: Advisory Recommendations - Financial advisors can help clients avoid penalties by ensuring they take their full RMDs, and if a missed RMD is identified, there are steps to mitigate penalties [6] - Quick action and proper documentation are essential for clients who miss an RMD, as the IRS may waive or reduce penalties if the situation is addressed promptly [7][8]