Required Minimum Distributions Update for 2024
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Required minimum distributions (“RMDs”) are amounts that retirement plan and individual retirement account (“IRA”) account owners are required to withdraw each year. RMDs are taxable income and may be subject to penalties if not distributed in a timely manner. If you were born before 1951, you should, in most cases, have already started taking Required Minimum Distributions (RMDs) from your IRAs. The IRS regulates RMD’s and so it can be stressful for any person how to ensure that requirements are met.
Required Minimum Distribution – Application and Timing
Before 2023, RMDs had to start when the individual turned 72, unless the individual was still working. Beginning in 2023, the SECURE 2.0 Act changed the RMD age to 73 for taxpayers who were born after 1950.Â
Roth IRAs are not subject to RMDs until after the death of the original account owner. The beneficiaries of an inherited Roth IRA account are subject to the RMD rules. However, while designated Roth accounts in a 401(k) or 403(b) plan are subject to the RMD rules for 2023, they are no longer required from these accounts in later years. Â
By the way, if this sounds complex, don't stress. Our financial consultants are here to walk you through the details and assist with any questions you might have.
RMDs from a Qualified Retirement Plan
The RMD rules also apply to employer-sponsored retirement plans, including profit-sharing plans, 401(k) plans, 403(b) plans and 457(b) plans. To satisfy the RMD requirements in a retirement plan other than 403(b) plans, you must take RMDs separately from each of your retirement plans. Only 403(b) plans can be aggregated with other 403(b) plans for RMD purposes. If you reached age 72 in 2022, your first RMD for 2022 was due by April 1, 2023. This amount is based on your December 31, 2021, account balance. Your 2023 RMD is due by December 31, 2023, based on your December 31, 2022 account balance. If you reached age 72 in 2023, your first RMD is for 2024, the year you reach age 73, and is due by April 1, 2025.Â
If you are still employed by the employer that sponsors the plan, and do not own more than 5% of the employer, your plan may allow (but is not required to allow) you to delay taking RMDs from the retirement plan until you retire. IRS rules always require you to take RMDs beginning at age 72 (age 73 if you reach age 72 in 2023 or later) from traditional IRAs, SEP, SIMPLE, and SARSEP IRA plans, even if you are still employed.
RMDs from an IRA
You can meet your RMD requirement by taking a withdrawal from one or more of your traditional IRAs, or SEP, SIMPLE, and SARSEP IRAs. It is not necessary to take a withdrawal from each of your IRAs, but your total withdrawals must be at least equal to the total amount of the RMDs due from all your IRAs.Â
If you reached age 72 in 2022:Â
The first RMD from your IRAs was due by April 1, 2023, based on your December 31, 2021, account balances. Your second RMD was due by December 31, 2023, based on your December 31, 2022, account balances.
If you reached age 72 in 2023:
Your first RMD is for 2024, the year you reach age 73, and is due by April 1, 2025. However, if you if you take your first required distribution in 2025, you will also have to take your second required contribution not later than December 31, 2025.Â
If you reached age 73 in 2023:Â
You were age 72 in 2022 and your first RMD for 2022 was due by April 1, 2023. Your second RMD was due by December 31, 2023, based on your December 31, 2022, account balances.
How to calculate how much to take out in 2024
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1. Know Your Starting Point
The age at which you must start taking RMDs is crucial. As of my last update in April 2023, individuals must begin taking RMDs at age 73. However, legislation changes, so stay updated on current laws.
2. Calculate Your Account Balance
Your RMD is calculated based on the balance in your retirement accounts as of December 31st of the previous year. Consolidate all your account statements to get this figure.
3. Use the IRS Life Expectancy Tables
The IRS provides life expectancy tables to determine your distribution period. Choose the table that best fits your circumstances—most people will use the Uniform Lifetime Table.
4. Do the Math
Divide your total account balance as of December 31st of the previous year by the distribution period from the IRS table. This result is the minimum you must withdraw in 2024.
Conclusion
The RMD rules are complex and confusing, so to avoid missing a required distribution being subject to excise taxes, check with your employer, IRA custodian, or tax advisor to confirm how these rules apply to you.Â
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