New Rules for RMDs: What Retirees Need to Know in 2024
Retirement accounts, including 401(k)s and IRAs, provide important tax benefits, but they come with specific rules. These regulations dictate not only contribution limits and investment options but also when account holders must make withdrawals.
The age for required minimum distributions (RMDs) has undergone several changes over the years. Originally beginning at age 70 1/2, the government raised this threshold to 72, and as of last year, it is now set at age 73.
Image source: Getty Images.
Changes to RMD rules have taken effect this year, potentially easing the burden for retirees who haven’t yet made their required withdrawals.
1. Roth Accounts Now Exempt from RMDs
Previously, Roth IRAs were not subject to RMDs. However, holders of Roth 401(k)s and 403(b)s still faced mandatory withdrawals, despite having funded them with after-tax dollars. While one could navigate around this by rolling over to a Roth IRA, it added unnecessary complexity.
Starting this year, this requirement is eliminated. All Roth retirement accounts are now exempt from RMDs, allowing account holders to keep their funds untouched for as long as they desire.
For those with traditional retirement accounts like 401(k)s and IRAs, the IRS still mandates withdrawals at age 73. If you turned 73 in 2024, remember that you have until April 1, 2025, to take your RMD for this year. Following that, RMDs for subsequent years are due by December 31.
2. Increased Limits on Qualified Charitable Distributions (QCDs)
For retirees not needing RMD funds, Qualified Charitable Distributions (QCDs) offer a tax-efficient alternative. Rather than facing penalties of up to 25% for skipping RMDs, you can direct these funds to charity instead.
A QCD allows for withdrawals that don’t count as taxable income. In 2023, QCDs had a limit of $100,000, which has now increased to $105,000 for 2024. This amount will continue to rise with inflation. While many may not reach the previous threshold for RMDs, higher-income retirees will find this change advantageous.
To execute a QCD, select a qualified charitable organization. The charity must be IRS-approved to count towards your QCD.
Request your retirement account provider to transfer funds directly to the charity. This process is essential; if you receive a check and then donate, it won’t qualify as a QCD, although it could be deducted on your tax return if you itemize.
Ensure you obtain written acknowledgment from the charity regarding your donation’s date and amount. While this documentation isn’t submitted to the IRS, it will be useful if verification is needed during an audit.
If you have questions concerning your RMDs, consult a tax professional promptly. With the December 31 deadline approaching, it is critical to have a strategy in place, especially if you have yet to take your RMD for 2024.
Discover the $22,924 Social Security Bonus You Might Be Missing
Many Americans lag in their retirement savings, but there are “Social Security secrets” that could enhance your retirement income. For example, one simple method might boost your income by as much as $22,924 annually! Understanding how to maximize your Social Security benefits could provide you with the peace of mind you desire for retirement. Click here to explore these strategies.
View the “Social Security secrets” »
The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
