2024 RMD Checklist
Get Ready for Year-End: RMDs and What You Need to Consider
As the end of the year approaches, it’s becoming time to ensure that your Required Minimum Distributions (RMDs) are in order. If you’re 73 or older by year-end, or if you’ve inherited an IRA, taking RMDs is a necessary part of your annual financial routine. Let’s walk through some key considerations to help you manage your RMDs efficiently and in a way that aligns with your overall financial strategy.
Timing is Key
It’s important to plan your RMDs well before the December 31 deadline. By addressing them early, you avoid the rush that often accompanies year-end financial tasks. Early planning also allows you to coordinate distributions from multiple accounts, ensuring that all necessary RMDs are taken without any last-minute complications. If your birthday falls between Jan 1, 1951, and December 31, 1951 (meaning you turned 73 this year) – you have until April 1, 2025, to take your first RMD. However, this means that you take 2 distributions in 2025 as you will still have to take a distribution for that year as well. That being the case, it may still be more tax efficient to withdraw your first RMD in 2024.
Accurate Calculations Matter
For those with multiple retirement accounts, accurately calculating your RMDs is essential. The IRS requires that you withdraw the correct amount based on the value of your accounts at the end of the previous year and your age. Mistakes in these calculations can result in a significant penalty— up to a 50% penalty on any RMD amount that wasn’t withdrawn in time. If you’re unsure about the numbers, seeking assistance from a financial advisor may be prudent.
Understand the Tax Implications
RMDs are considered taxable income, which means they can impact your overall tax situation. It’s important to review how this additional income will affect your tax bracket, particularly if your financial situation has changed during the year. One strategy to consider is a Qualified Charitable Distribution (QCD), where you can donate up to $105,000 (in 2024, adjusted annually for inflation) directly from your IRA to a qualified charity. This not only satisfies your RMD, but also excludes the distribution from your taxable income.
Navigating Inherited IRAs
Recent changes in IRS regulations have clarified the rules surrounding inherited IRAs, particularly with respect to the 10-year rule introduced by the SECURE Act of 2019. Under these rules, most non-spouse beneficiaries who inherit an IRA are required to withdraw all the funds within 10 years. Importantly, the IRS has now finalized that for most heirs, annual Required Minimum Distributions (RMDs) must be taken throughout the 10-year period, not just in the final year. This applies if the original account holder had already started taking RMDs before their death.
The new rules do not apply to inherited Roth IRAs, where beneficiaries can still wait until the 10th year to withdraw the entire account balance without facing RMD requirements. However, withdrawals from traditional IRAs are taxable, and the IRS has advised beneficiaries to plan carefully to avoid a large tax bill in the final year.
Additionally, certain beneficiaries, such as spouses, minor children, and individuals with disabilities, may be exempt from these rules or have different distribution requirements. For beneficiaries who inherited IRAs between 2020 and 2023, the IRS has provided relief by waiving penalties for missed RMDs from 2021 to 2024. However, starting in 2025, the new rules will fully apply, and annual distributions will be mandatory.
These new regulations underscore the importance of understanding and planning for the tax implications of inherited IRAs. If you’re navigating these complexities, it’s advisable to consult with a financial advisor to ensure your strategy aligns with the latest rules and minimizes your tax burden.
Planning for Future RMDs
While managing this year’s RMD, it’s also an opportunity to think about future distributions. Consider how your RMDs will fit into your long-term retirement plan. For example, you might explore Roth conversions to reduce the size of future RMDs, which could help lower your taxable income in retirement.
Final Thoughts
Handling RMDs is a critical aspect of your financial plan, especially as you near the year-end. By planning and understanding the rules, you can manage your distributions effectively, avoid penalties, and align them with your broader financial goals. If you have questions or need guidance on your RMD strategy, don’t hesitate to reach out. We’re here to help ensure that your approach is tailored to your needs and that you’re fully prepared for year-end.
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