Missing RMDs Cost Investors $1.7B in Penalties, per Vanguard
More than half of investors with IRA balances under $5,000 missed their required minimum distribution in 2024, according to research by Vanguard.
The IRS released this month regulatory updates on required minimum distributions for qualified retirement plans, and research by Vanguard Group suggests some investors and recordkeepers may need to pay closer attention. About 6.7% of Vanguard-held individual retirement account investors missed RMDs in 2024, resulting in total tax penalties of approximately $1.7 billion.
Investors ages 73 and older typically need to take annual RMDs from traditional IRAs and 401(k) plans by December 31, with an extension through the following April 1 for a first-time RMD. Failure to take RMDs can lead to tax penalty rates of 10% to 25%. Vanguard, which provides free auto-RMD services, found that investors who completely missed RMDs needed to take an average distribution of $11,600, meaning average tax penalties ranged from $1,160 to $2,900.
Owners of smaller Vanguard IRAs were more likely to miss RMDs—with 56.8% of investors with balances under $5,000 missing their RMD in 2024, compared with 2.5% of investors with balances of more than $1 million. Vanguard also found repeat offenders are common, as 55% of investors who missed an RMD missed it again the following year, compared with 3% of investors who met an RMD the previous year.
“Most investors seem to make RMDs a routine, but rather than ‘set and forget,’ many simply ‘forget and forget,’” said Andy Reed, Vanguard’s head of behavioral economics research, in a statement.
Vanguard found that age or gender did not influence the likelihood of missing RMDs. The study also found that 24% of Vanguard IRA investors withdrew amounts below RMD thresholds, but it was not known if they met requirements with withdrawals from other IRAs.
“With investors changing jobs nine times or more in their working careers, it’s tough to keep tabs on all retirement accounts,” said Aaron Goodman, a Vanguard senior investment strategist and leader of the research team, in a statement. “Combining IRAs and putting RMDs on autopilot takes forgetting out of the equation.”