Financial Red Flags and Scams to Watch Out For
Where there is money, there are unfortunately mistakes and scams. When it comes to RMDs, being vigilant can protect you from costly errors and fraudulent schemes. Here are a few red flags to keep on your radar.
Mistake 1: Forgetting About Old Retirement Accounts
One of the most common and costly mistakes is simply forgetting about an old 401(k) or 403(b) from a job you left decades ago. Out of sight can truly mean out of mind. However, the IRS does not forget. You are responsible for taking an RMD from every single one of your tax-deferred retirement accounts. Forgetting one means you will fail to take your full required distribution, triggering that harsh penalty. It’s a great practice to consolidate old workplace accounts into a single IRA to make tracking them easier.
Mistake 2: The Aggregation Error
As mentioned earlier, you can add up the RMDs for all your traditional IRAs and take the total from just one IRA. However, this rule does not apply between different types of accounts. You cannot take an RMD required from a 401(k) out of an IRA, or vice versa. The RMD for a 403(b) must come from a 403(b) account. Confusing these rules can lead to a penalty for not taking the proper distribution from the correct account type, even if you withdrew the right total amount.
Scam Alert: The “RMD Problem” Phishing Scam
Scammers know that RMDs can be a source of anxiety for seniors. They exploit this by sending urgent-sounding emails or making phone calls pretending to be from the IRS or your brokerage firm. The message might say something like, “Warning: Your RMD calculation is incorrect. Click here to verify your account immediately or face penalties.”
This is a classic phishing scam designed to get you to click a malicious link or provide your login credentials and personal information. Remember, the IRS will never initiate contact with you by email, text message, or social media to request personal or financial information. Your financial institution may send you RMD reminders, but they will not ask for your password or full account number in an email. If you receive a suspicious message, do not click any links. Instead, contact your financial institution directly using the phone number on your account statement or their official website.
To protect yourself from scams and for consumer information, consult the Consumer Financial Protection Bureau (CFPB) and the FTC.
