If you’re aged 73 or older, it’s essential to be aware of key deadlines and updates regarding required minimum distributions (RMDs) for individual retirement arrangements (IRAs) and other retirement accounts. The Internal Revenue Service (IRS) has issued a reminder about these requirements, including changes introduced by the SECURE 2.0 Act. Missing your RMDs can lead to penalties, so understanding these rules is crucial for maintaining tax compliance and avoiding unnecessary costs.
What Are Required Minimum Distributions (RMDs)?
RMDs are mandatory withdrawals that retirement account owners must take annually once they reach a certain age. These withdrawals are considered taxable income and must be taken on time to avoid penalties.
Key Updates: SECURE 2.0 Act Changes for 2024
The SECURE 2.0 Act introduced several significant changes:
- Raising the RMD Starting Age: Account holders now begin taking RMDs at age 73.
- Eliminating RMDs for Designated Roth Accounts: Starting in 2024, Roth accounts in 401(k) and 403(b) plans are no longer subject to RMD rules while the account owner is alive.
RMD Rules by Account Type
Here’s a breakdown of RMD requirements across different retirement accounts:
Traditional IRAs and IRA-Based Plans
- RMDs are required annually once the account owner turns 73, regardless of employment status.
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Employer-Sponsored Retirement Plans
- RMDs apply to participants in 401(k), 403(b), and similar plans, but withdrawals may be delayed until retirement unless the account holder owns more than 5% of the sponsoring business.
Roth IRAs
- Original Roth IRA owners are not required to take RMDs during their lifetime. However, beneficiaries of Roth IRAs are subject to RMD rules after the account owner’s death.
Designated Roth Accounts
- From 2024 onward, RMDs are no longer required for these accounts while the owner is alive.
Penalties for Missed RMDs
Failing to withdraw the required amount by the deadline triggers a 25% excise tax on the shortfall. However, this penalty can be reduced to 10% if corrected within two years.
Calculating and Reporting RMDs
Account owners are ultimately responsible for ensuring the correct RMD is withdrawn, even if IRA trustees or plan administrators aid. The IRS offers helpful tools, such as RMD worksheets, to simplify calculations.
If an RMD is missing, account owners must file Form 5329 along with their federal tax return to report the error and pay any applicable penalties.
Special Rules for Inherited IRAs
Beneficiaries of inherited IRAs, Roth IRAs, or retirement plans may need to take RMDs based on specific factors, including:
- Relationship with the Original Account Holder: Spouses, minor children, or other eligible individuals may have different rules.
- SECURE Act Changes: New RMD rules apply to accounts inherited after 2019.
- Account Holder’s Age at Death: Rules vary depending on whether the original account holder had started taking RMDs.
Source: irs.com
