Everything’s Changed on Required Minimum Distributions (RMDs) in 2024 – 3 New Rules Are Coming

Retirees will need to consider three additional rules that will apply to them required minimum distributions (RMD) this year, what are the minimum amounts of money they must withdraw each year from their retirement accounts. There are many benefits associated with retirement accounts such as an IRA or 401(k). Your retirement savings can be boosted by incentives such as tax-free growth, tax deductions and credits, and matching contributions. However, you can’t avoid paying taxes on your retirement savings forever. The government will eventually want you to start taking money out of these accounts, which could result in a significant tax bill. That’s why it implements required minimum distributions, or RMDs.

Although retirees are usually the ones who worry about required minimum distributions (RMDs), everyone should be aware of the rules. It never hurts to prepare ahead of time, and if you inherit a retirement account, you may need to take RMDs long before you expect to retire. It’s important to stay on top of the rules because breaking them can have serious consequences. If you are a retired worker or expect to retire soon, you should be aware of recent legislation that will implement some new retirement plan rules in 2024.

3 new rules are coming for required minimum distributions (RMDs)

RMDs may be avoided in 2024 for retirees or those who inherited IRAs after 2020

of SECURE 2.0 Act of 2022 mandates IRA heirs to continue making required minimum distributions (RMDs) each year and exhaust the account by the tenth year. This applies to non-spousal beneficiaries, with some exceptions for disabled beneficiaries. However, the IRS is offering relief to taxpayers who inherited an IRA due to annual RMDs between 2020 and 2024. They can choose not to distribute this year, but the account must be depleted within ten years.

For more, delay of withdrawals from your inherited IRA this year may be wise because any amount taken will be subject to income taxes. As a result, you may have more time to prepare your taxes in the future. However, since you must empty the account within ten years, spreading it more evenly can lower your overall tax liability. However, it never hurts to be flexible.

Required minimum distributions no longer apply to Roth 401(k)s

of Roth 401(k) is growing in popularity, with a final upgrade planned for 2024. RMDs were previously not required for Roth IRAs, but now they can be converted to one, making tax management easier. This would eliminate the need to take RMDs, but it could also create new problems because of the five-year rule. Before you can take tax-free withdrawals from your Roth IRA, you must have had the account open for at least five years, under the five-year rule.

If you convert your Roth 401(k) and open a Roth IRA for the first time, you may not be able to withdraw as much money as you need without incurring unnecessary additional taxes. However, this will no longer be a problem starting in 2024. All funds in the Roth 401(k) are fully accessible to you and you are free to keep them. Additionally, you won’t have to take out more than you need due to RMDs, allowing you to keep the account growing tax-free.

You can reduce your RMDs by up to $105,000 per year

With millions saved for retirement in an IRA, seniors can face a large required annual minimum distribution. The IRS offers one qualified charitable distribution (QCD) option for seniors with significant IRA balances that count toward their required minimum distributions. The IRS allows seniors who are 70 1/2 or older to withdraw up to $105,000 in QCDs from their IRAs for 2024. This exceeds the previous limit of $100,000. Married couples can donate up to $210,000 from their IRAs because there is an individual limit on that amount. Note that QCDs are exclusive to IRAs. Employer-provided defined contribution plans, such as 401(k)s, are not accepted.

For example, donating QCD it’s a great idea. In addition to being completely tax-free, the distribution also counts toward required minimum distributions. This means you are still able to deduct charitable contributions from your taxes by taking the standard deduction instead of itemizing. This could mean you save even more money on your tax payments. If you don’t want or need the money to donate $105,000 from your IRA each year, you can use a QCD to significantly lower your tax liability and required minimum distributions.