If you’re nearing retirement or managing retirement accounts, understanding Required Minimum Distributions (RMDs) is essential. Recent updates, including changes from the SECURE 2.0 Act, have shifted the timeline and rules for these mandatory withdrawals. Here’s a quick breakdown of what you need to know:
1. What Are RMDs?
RMDs are the minimum amounts you must withdraw annually from certain retirement accounts, including:
- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- Employer-sponsored retirement plans (e.g., 401(k), 403(b), and 457(b) plans)
Roth IRAs are exempt from RMDs during the account owner’s lifetime but are subject to them after their death.
2. New Age Requirements for RMDs
- If you turned 72 before December 31, 2022, your RMDs have already begun.
- If you turn 72 after December 31, 2022, you must start RMDs at age 73.
- Your first RMD can be delayed until April 1 of the year after you reach the required age.
For example:
- If you turn 73 in 2024, your first RMD is due by April 1, 2025.
3. RMDs for Employer-Sponsored Plans
You can delay RMDs from employer plans like 401(k)s until you retire, unless you own 5% or more of the company.
4. RMDs for Roth Accounts
Starting in 2024, RMDs are no longer required from Roth 401(k) or 403(b) accounts during the account owner’s lifetime.
5. How Are RMDs Calculated?
RMD amounts are determined by dividing the previous year’s December 31 account balance by a life expectancy factor from IRS tables.
- If your spouse is your sole beneficiary and more than 10 years younger, a different calculation applies.
6. Consequences of Missing an RMD
Failing to take an RMD on time can result in penalties:
- The penalty has been reduced to 25% of the missed amount (down from 50%).
- If corrected within two years, the penalty drops further to 10%.
7. RMDs and Beneficiaries
For those inheriting retirement accounts after January 1, 2020, most beneficiaries must withdraw the full account balance within 10 years. Exceptions apply to:
- Surviving spouses
- Minor children
- Disabled or chronically ill individuals
- Individuals within 10 years of the deceased’s age
8. Are RMDs Taxable?
Yes, RMDs are typically taxed as ordinary income, except for amounts that are part of your basis or come from qualified distributions from Roth accounts.
Key Takeaways
- Age 73 is now the new starting point for most RMDs due to the SECURE 2.0 Act.
- Roth accounts in employer plans are no longer subject to RMDs starting in 2024.
- Stay compliant to avoid penalties and understand how RMD rules apply to your retirement plan.
By staying on top of these changes, you can better manage your retirement income and minimize potential tax liabilities. For more detailed guidance, consult a financial advisor or refer to IRS publications like 590-B for more information on RMDs.
Retirement plan and IRA required minimum distributions FAQs | Internal Revenue Service
