So here’s a fun fact that’ll make you want to check your retirement accounts right now: Vanguard just dropped some numbers that show 585,000 of their clients basically forgot to take money out of their own retirement accounts last year. And the IRS? They’re loving it.
Here’s the deal with Required Minimum Distributions (RMDs) – once you hit a certain age (think early 70s), Uncle Sam says “Hey, you’ve had your tax break long enough, time to start paying up.” You have to withdraw a minimum amount from your traditional IRAs and 401(k)s each year. Miss it? That’s a 25% penalty on whatever you should have taken out. Ouch.
Vanguard’s latest report is like watching a financial horror movie. Nearly 7% of their RMD-eligible clients didn’t take any withdrawals in 2024. The average missed amount? $11,600. Do the math – that’s potentially $1,160 to $2,900 in penalties per person. For doing absolutely nothing.
But wait, it gets worse (or better, if you’re the IRS). Another 24% took some money out but not enough. So we’re talking about roughly one-third of retirees who are either completely whiffing or falling short on this basic requirement.
The really wild part? The people with the smallest accounts – under $5,000 – are the most likely to mess this up. Over half of them missed their RMDs entirely. Meanwhile, even some folks with serious money ($250K-$500K) are still forgetting. And if you’re in the millionaire club and you forget? Average penalty: $8,792. That’s a very expensive senior moment.
Here’s the kicker that’ll make you shake your head: Vanguard found that people who miss their RMDs once are likely to do it again. 55% of forgetful folks repeated their mistake the next year. As one Vanguard researcher put it, instead of “set and forget,” many people just “forget and forget.”
The good news? This is totally fixable. Vanguard suggests two brain-dead simple solutions:
1. Put it on autopilot. Most retirement account providers will let you set up automatic withdrawals. Set it once, forget about it (in a good way this time).
2. Consolidate your accounts. If you’ve got IRAs scattered across different jobs like breadcrumbs, combine them. Fewer accounts = fewer things to remember = fewer ways to mess up.
Look, retirement planning is complicated enough without voluntarily paying thousands in penalties for forgetting basic paperwork. The average American changes jobs nine times during their career, so it’s easy to lose track of old 401(k)s and IRAs. But that’s exactly why automation and consolidation aren’t just nice-to-haves – they’re financial survival tactics.
Bottom line: Don’t be part of Vanguard’s next cautionary tale. Your future self (and your bank account) will thank you.