"Saving for retirement in a traditional IRA or 401(k) can make more sense than socking money away in a Roth account. That's because traditional retirement accounts give you a tax break on your contributions. If you're a higher earner in a higher tax bracket, that tax break may be very valuable to you. Plus, you might earn too much money to contribute to a Roth IRA directly, making a traditional IRA a better bet."
"If you don't take your RMD on time, you face a 25% penalty on the amount you fail to remove. And while it's possible to get that penalty reduced to 10% if you correct your mistake within two years, that could still end up being a lot of money to lose. Say you're looking at a $20,000 RMD this year. Your best-case scenario is a $2,000 penalty, and your worst-case scenario is a $5,000 penalty, if you don't take that withdrawal by Dec. 31."
Traditional IRAs and 401(k)s provide tax-deductible contributions that can be especially valuable for higher earners and for those ineligible to contribute directly to a Roth IRA. Required minimum distributions (RMDs) begin at age 73, or age 75 for those born in 1960 or later, and must be managed to avoid penalties. First RMDs can be deferred to April 1 of the following year, but subsequent RMDs must be taken by December 31. Missing an RMD triggers a 25% penalty on the undistributed amount, potentially reduced to 10% if corrected within two years. The IRS can waive penalties for qualifying reasons such as illness or administrative errors.
Read at 24/7 Wall St.
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