Navigating Required Minimum Distributions (RMDs) is a crucial aspect of retirement planning. RMD rules determine how much you must withdraw annually from your retirement accounts once you reach a certain age. This article will explore the RMD rules applicable in 2024 and beyond, with a particular focus on changes affecting inherited IRAs and the implications for spouses, including examples related to reaching full retirement age.
RMD Rules Starting in 2024
General RMD Requirements: Starting in 2023, the SECURE Act raised the age at which retirees must begin taking RMDs from their retirement accounts, such as traditional IRAs, 401(k)s, and other qualified plans. Here’s how it applies:
- For those who turn 72 after December 31, 2022, the required beginning age for RMDs has been raised to 73.
- Looking further ahead, individuals who will turn 72 on or after January 1, 2033, will need to start RMDs at age 75.
Calculating RMDs: To calculate your RMD for any given year:
- Determine the account balance as of December 31 of the previous year.
- Use the IRS Uniform Lifetime Table to find the distribution period corresponding to your age.
- Divide the account balance by the distribution period to find your RMD amount.
For example, if you turn 73 in 2024 and have a retirement account balance of $100,000 at the end of 2023, and your distribution factor is 25.5 (from the Uniform Lifetime Table for age 73), your RMD would be approximately $3,922 ($100,000 / 25.5).
Special Considerations for Inherited IRAs
Spouse Beneficiaries: Spouses who inherit IRAs have flexible options that can significantly impact their RMD obligations:
- Treat as Their Own: A spouse beneficiary may choose to roll the inherited IRA into their own IRA, delaying RMDs until they reach their own required beginning age (now 73 or 75, depending on their year of birth).
- Remain as Beneficiary: Alternatively, a spouse can remain as a beneficiary. This choice allows them to delay RMDs until the year the deceased would have reached their required beginning age. For example, if a spouse inherits an IRA in 2024 and the deceased would have turned 73 in 2025, RMDs can be delayed until 2025.
Non-Spouse Beneficiaries: Under the SECURE Act, most non-spouse beneficiaries are required to withdraw the entire balance of the inherited IRA within ten years of the account holder’s death. This rule applies regardless of whether the account holder died before, on, or after their required beginning date.
Examples Related to Full Retirement Age
Consider a scenario where someone reaches the age of 73 in 2024 and decides to start taking RMDs. If their IRA balance at the end of 2023 was $200,000 and their distribution factor at age 73 is 25.5, their RMD would be about $7,843.
Another example could involve a spouse inheriting an IRA in 2024. If the deceased was 72 but had not yet started RMDs, the surviving spouse could choose to delay RMDs until what would have been the deceased’s required beginning age of 73. This strategic choice can provide additional time to plan for tax-efficient withdrawals.
Conclusion
The rules surrounding RMDs are designed to ensure that retirement savings are eventually drawn down and subject to taxation. For those navigating retirement or managing inherited IRAs, it’s crucial to understand these rules to avoid penalties and optimize financial strategies. As always, consulting with a Fee-Only financial adviser can provide tailored advice and help navigate the complexities of RMDs, ensuring compliance and optimizing retirement income planning.
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