The ABCs of RMDs
As we move into the Holiday Season, we also move closer to year end. Dec 31 of each year is when normal RMDs are due to be taken. The penalties for failing to take your RMD can result in a 50% penalty! So, let’s review the basics so we can get back to shopping and cooking!
When do RMDs begin? That depends on when you were born.
- For individuals born in 1951 or later, the starting age for RMDs is 73 for those who turn 73 in 2024 or later.
- If you were born after 1951 you must take your first RMD in the year you turn 73.
- If you were born in 1950 or earlier: If you turned 72 in 2023 you must begin taking RMDs in 2024.
Are there special rules for the first RMD? Yes, indeed!
- First RMD: If 2024 is your first year to take an RMD (i.e., you turn 73 in 2024), you can defer your first RMD until April 1, 2025. However, if you defer, you will need to take two RMDs in 2025: one for 2024 and one for 2025.
- Subsequent RMDs: After your first RMD, all future RMDs must be taken by December 31 of each year. If you delay your first RMD to April 1, you may face the inconvenience of having to take two RMDs in the same year, which could increase your taxable income.
What about RMDs from Inherited IRAs?
- If you inherit an IRA, 401(k), or another retirement account, the RMD rules are different depending on when the account owner passed away and your relationship to them. Generally, non-spouse beneficiaries must take RMDs over a 10-year period (thanks to the SECURE Act), but there are exceptions, such as for eligible designated beneficiaries (minor children, disabled individuals, etc.).
- The 10-Year Rule: For most non-spouse beneficiaries who inherit retirement accounts after January 1, 2020, the “10-Year Rule” requires them to withdraw the entire balance within 10 years of the original account holder’s death. However, RMDs are not required during those 10 years unless the account holder died before their RMD age (73).
The above covers the basics of RMDs. If you need help calculating your RMD, we’re happy to lend a hand. Of course, there are a variety of other retirement vehicles that RMDs may pertain to. For a more in-depth discussion of RMDs and how they apply to Qualified Charitable Distributions, 401Ks, SEP IRAs, Simple IRA’s, please give us a call. Now, back to the party prep!
The information in this article is a compilation pulled from a variety of sources. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing
