IRS reminds retirees to take required minimum distributions by December 31, 2024
As the year draws to a close, the IRS is reminding retirees aged 73 and older about the importance of withdrawing their Required Minimum Distributions (RMDs) from retirement accounts by December 31, 2024.
Failing to meet this deadline can result in significant penalties.
Here’s everything you need to know to stay compliant and make the most of your retirement funds.
What are required minimum distributions (RMDs)?
RMDs are the minimum amounts that retirees must withdraw annually from specific retirement accounts, including:
- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- 401(k) plans
- Other defined contribution plans
The purpose of RMDs is to prevent individuals from deferring taxes on their retirement savings indefinitely.
These withdrawals are considered taxable income and must be reported on your tax return.
Key updates for the 2024 tax year
Age requirement changes
The SECURE 2.0 Act has adjusted the age at which RMDs must begin. Starting in 2024, individuals are required to take their first RMD the year they turn 73.
This change reflects efforts to align RMD rules with increasing life expectancies.
Deadlines for RMDs:
- First-time RMDs: Retirees turning 73 in 2024 have until April 1, 2025, to take their first RMD. However, delaying this withdrawal will require taking two RMDs in 2025, potentially increasing taxable income.
- Subsequent RMDs: All other RMDs must be withdrawn by December 31 of each year.
How to calculate your RMD
The amount of your RMD is calculated by dividing the balance of your retirement account as of December 31 of the previous year by a distribution period provided in the IRS Uniform Lifetime Table.
If you have multiple retirement accounts, you must calculate the RMD for each account. However, the total withdrawal can be made from one or more accounts, depending on your financial strategy.
Consequences of missing the RMD deadline
The penalties for failing to withdraw your RMD by the deadline have been reduced in recent years but remain significant:
- 25% penalty: Applies to the amount not withdrawn by the deadline.
- 10% reduced penalty: Applies if you promptly correct the missed withdrawal by filing a return and submitting Form 5329.
To avoid these penalties, ensure your RMDs are taken on time.
Steps to ensure compliance
Here’s how to stay on track and avoid penalties:
- Review your accounts: Identify all retirement accounts subject to RMDs.
- Calculate the RMD: Use the IRS Uniform Lifetime Table or consult a tax professional to determine the correct amount.
- Withdraw by December 31: Take your RMD before the end of the year to avoid penalties.
- Consult a financial advisor: A professional can help you understand the tax implications of your withdrawals and optimize your strategy.
Proactive tips for retirees
Take advantage of IRS tools
The IRS offers online resources, including an RMD worksheet, to simplify the calculation process.
Consider tax-smart strategies
If you are charitably inclined, consider making a Qualified Charitable Distribution (QCD).
This allows you to donate directly to a qualified charity, counting toward your RMD and reducing your taxable income.
Bottom line
The 2024 RMD deadline is a critical date for retirees. By withdrawing your RMDs on time, you can avoid penalties and maintain control over your retirement income.
If you’re unsure about your RMD obligations or need personalized advice, consult a financial or tax professional. Taking action now ensures a smoother, stress-free tax season.