The IRS is reminding taxpayers aged 73 and older to take their required minimum distributions (RMDs) from individual retirement arrangements (IRAs) and other retirement plans. Missing the deadline could result in penalties, so it’s important to understand the rules and recent updates introduced by the SECURE 2.0 Act.
What Are RMDs?
RMDs are annual withdrawals that many retirement account owners must take once they reach a certain age. These distributions are treated as taxable income. Missing an RMD deadline can result in a 25% excise tax on the amount not withdrawn, though the penalty drops to 10% if corrected within two years.
SECURE 2.0 Act Changes
The SECURE 2.0 Act introduced key updates:
- Higher RMD Starting Age: The required age to begin taking RMDs has increased to 73.
- Roth Accounts: RMDs are no longer required for Designated Roth accounts in 401(k) and 403(b) plans starting in 2024 while the account owner is alive.
For detailed comparisons of RMD rules across IRAs and retirement plans, refer to the IRS’s RMD comparison chart.
Key Rules for Different Account Types
- Traditional IRAs: Withdrawals must begin at age 73, regardless of employment status.
- Employer-Sponsored Plans: RMDs apply after retirement unless the account holder owns more than 5% of the sponsoring business.
- Roth IRAs: Account owners are not required to take RMDs during their lifetime, though beneficiaries must follow RMD rules after the owner’s death.
RMD Calculations and Responsibilities
Plan administrators or IRA trustees are responsible for either reporting or calculating the RMD amount for account owners. While you can withdraw the total RMD from one or multiple accounts, the account owner is ultimately responsible for ensuring the correct amount is withdrawn. To help, the IRS provides RMD worksheets to calculate the required amounts.
If the full RMD is missed, taxpayers should file Form 5329 with their federal tax return for the applicable year.
Inherited IRAs and Beneficiary Rules
Beneficiaries of inherited IRAs or retirement plans may also need to take RMDs. Factors affecting RMD requirements include:
- Whether the original account owner passed away before or after beginning RMDs.
- The relationship of the beneficiary to the account owner (e.g., spouse, minor child, or entity).
- Whether the account owner passed away after 2019, as the SECURE Act introduced new rules for beneficiaries.
Additional guidance is available in IRS Publication 559 for estate executors and administrators.
Need Help?
For more information on RMDs, including worksheets, FAQs, and forms, visit the IRS website at IRS.gov. Stay informed and ensure compliance to avoid penalties and maximize your retirement benefits.
