Retirement planning doesn’t stop at saving—it requires staying up to date with tax obligations, including Required Minimum Distributions (RMDs). If you’re 73 or older, the IRS reminds you to take your RMDs by the year-end deadline to avoid penalties. This year, updates introduced by the SECURE 2.0 Act bring significant changes to RMD rules, making it crucial to review your obligations.
What Are Required Minimum Distributions?
Required Minimum Distributions (RMDs) are mandatory annual withdrawals from retirement accounts, such as IRAs and employer-sponsored plans. These withdrawals are taxable income, and failing to take the correct amount on time could result in penalties.
For detailed guidance, visit the IRS Retirement Plan and IRA RMD FAQs page.
Key Updates from the SECURE 2.0 Act
The SECURE 2.0 Act introduced important updates to RMD rules:
- Raised Starting Age: The age to begin taking RMDs has increased to 73 for many retirees.
- No RMDs for Certain Roth Accounts: Starting in 2024, designated Roth accounts in 401(k) and 403(b) plans will no longer require RMDs while the account owner is alive.
For a full comparison of RMD rules across different plans, refer to the RMD Comparison Chart.
Who Is Affected by RMD Rules?
RMD rules apply to the following account types:
- Traditional IRAs and IRA-Based Plans: Annual withdrawals begin at age 73, regardless of employment status.
- Employer-Sponsored Plans: RMDs may be delayed until retirement unless the participant owns more than 5% of the sponsoring business.
- Roth IRAs: Account owners are not required to take RMDs during their lifetime, but beneficiaries must comply with RMD rules after the owner’s death.
Penalties for Missing RMDs
Failing to withdraw the required amount by the deadline results in a 25% excise tax on the missed portion. However, this rate drops to 10% if the error is corrected within two years. Account owners must file Form 5329 to report and address missed distributions.
How to Calculate RMDs
While plan administrators or IRA trustees may calculate RMD amounts, account owners are ultimately responsible for ensuring accuracy. You can use the IRS’s RMD worksheets to determine the required amount and payout periods.
Inherited IRAs and RMDs
If you inherit an IRA or retirement account, you may need to take RMDs depending on the account type and your relationship to the original owner. Specific factors include:
- Whether the account owner passed away before or after beginning RMDs.
- Your relationship to the owner (spouse, minor child, disabled individual, etc.).
- New rules introduced by the SECURE Act for post-2019 inheritances.
For additional resources, visit Retirement Topics – Beneficiary and RMDs for IRA Beneficiaries. Help for those in charge of the estate to complete and file federal income tax returns can be found in Publication 559, Survivors, Executors and Administrators.
Don’t Miss Your Deadline
Ensure you meet the RMD requirements by year-end to avoid penalties. For more details and tools, visit IRS.gov.
Get Expert Help from Torkelson & Associates
Navigating retirement planning and Required Minimum Distributions can be complex. Let the experts at Torkelson & Associates CPAs, LLP help you make informed decisions to optimize your financial future.
Contact us today for personalized advice and assistance with retirement planning, tax strategies, and more!