12/10/2024
Is it possible to over save into a 401k?
Yes, if you are maxing out a 401k with a good employer match you could run into required minimum distributions in retirement.
An RMD, or required minimum distribution, is the minimum amount of money that you are legally mandated to withdraw each year from a retirement account (beginning at age 73 in 2024).
If you don’t withdraw RMDs on time, you could face a penalty of up to 25 percent (in addition to ordinary income tax on the distribution).
For example, if your RMD is $10,000 from an IRA and you only took $5,000, you’ll pay up to $1,250 in tax penalties plus your ordinary income tax ranging from 10 to 37 percent.
This is a main reason you need to diversify your accounts in the same way that you diversify your investments. By having non qualified investments, life insurance cash values, real estate and Roth accounts you will be able to strategically distribute funds to minimize your taxes and avoid RMDs.
If you’re unsure if you are saving too much into a 401k let’s build a financial plan!
