Required Minimum Distributions Changes in 2024

When signed into law on December 29, 2022, the Secure 2.0 Act had a significant impact on required minimum distributions (RMD). The intent was to provide increased flexibility for retirement planning and reduce penalties for RMD mistakes.

RMD Starting Age and Calculations

The RMD age limit for individual retirement account (IRA) owners is as follows:

• If you were born between 1951 and 1959, your RMD age is 73.
• If you were born in or after 1960, your RMD age is 75.

By increasing the RMD age, retirees are able to keep funds in their tax-deferred accounts for longer, allowing additional time to grow their retirement savings before the mandatory withdrawals commence.

The Uniform Life Table may be used to calculate withdrawal amounts required by the December 31 deadline. This is done by determining the balance of the IRA at the end of the previous year, locating the account owner’s age and distribution period number on the table, and dividing the IRA account balance by the distribution period. For example, an IRA owner, who turns age 75 in 2025 with an account balance of $100,000 as of December 31, 2024, must take out $4,065 ($100,000 divided by 24.6) as their RMD.

When an RMD is Missed

The IRS used to impose a 50% penalty tax when an RMD was not taken. Beginning in 2024:

• The penalty for a missed RMD has been reduced to 25%.
• If a missed RMD is timely corrected (for example, by filing an amended tax return), the penalty will be reduced to from 25% to 10%.

For retirees who accidently miss their RMD deadline, these changes are more forgiving.

RMD Exception for Those Still Working

If you are age 73, actively working, and participate in your employer’s retirement plan, your RMD from that plan may be delayed until April 1 of the year after you retire. In order to qualify for this exception:

• Your ownership interest in the company that is sponsoring the plan must not be 5% or more; and
• Your employer’s retirement plan must allow for this exception.

RMD Eliminated for Roth 401(k)

Beginning in 2024, owners of Roth 401(k)s are no longer subject to RMD during their lifetime, which aligns with Roth IRAs which were never subject to a lifetime RMD. This change elevates the tax advantage benefits of these plans and simplifies retirement planning for Roth account holders.

Qualified Charitable Contributions (QCD)

A QCD is a tax-free transfer of funds to a qualified charity from an IRA, and a QCD counts towards the RMD. The QCD rules have been enhanced, allowing retirees greater flexibility to incorporate charitable giving as part of their financial plan.

• The annual QCD limit remains at $100,000 but will now be indexed for inflation starting in 2024.
• A one-time QCD of up to $50,000 can be made to certain split-interest charitable trusts, such as:
    – Charitable Remainder Unitrusts (CRUTs);
    – Charitable Remainder Annuity Trusts (CRATs); and
    – Charitable Gift Annuities (CGAs)

Conclusion

Understanding these important updates allows you to make more informed decisions around planning your finances, whether you are approaching retirement age or already enjoying retirement. Working with a professional financial advisor on retirement planning projections and needs is a great way to determine when to retire, the best saving and contribution practices, and how to stretch money to meet financial goals over time.

Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.