As year-end approaches, so does the deadline for taking required minimum distributions (RMDs) from your tax-deferred retirement accounts to comply with federal tax laws. You generally must start taking these withdrawals from your traditional IRA, SEP IRA, SIMPLE IRA, and employer retirement plan accounts, such as 401(k) or 403(b) plans, when you reach age 72 (73 if you reach age 72 after Dec. 31, 2022).1
Below are six things you need to know about RMDs for 2024.
1. If you turn age 73 in 2024, you’ll need to take your first RMD by April 1, 2025 to avoid penalties. After that, the annual deadline for taking RMDs is the same each year: December 31st.
2. Effective this year, the penalty for missing an annual distribution or failing to take the minimum amount from one or more of your accounts was reduced from 50% of your annual RMD amount to 25%. The best way to avoid missed payments and penalties is by automating your RMDs based on your preferred distribution schedule.
3. RMDs may be higher this year due to increased account values. RMDs are calculated based on IRS life expectancy tables and your retirement account value(s) at the end of the previous year. While the 2023 stock market rebound was welcomed by investors, many may experience higher RMDs for 2024, as a result.2
4. RMDs can increase your tax burden. Since RMDs are taxed as ordinary income, they can push retirees into higher federal income tax brackets. A strategic approach to managing RMDs can help minimize tax liabilities so you keep more of your income in retirement.
5. RMDs could impact your Medicare costs. RMDs are included in your modified adjusted gross income (MAGI) that is used to determine your annual premiums for Medicare Part B (doctors’ services and outpatient care) and Part D (prescription drug plans). If you participate in these plans, individuals with a MAGI above $103,000 or married couples filing jointly with a MAGI above $206,000 are subject to higher premiums. The Social Security Administration uses a sliding scale to calculate premium adjustments based on your MAGI.3
6. QCDs can help reduce taxable income. A qualified charitable distribution (QCD) is a tax-free transfer of funds from an IRA to a charity that can satisfy all or a portion of the account owner's RMD. In 2024, the QCD limit is $105,000. You must be 70.5 or older, own an IRA, and the funds must be transferred directly by your IRA custodian to a qualified charity. Strict rules apply, so be sure to call the office for more information before initiating a QCD.
To learn more about managing RMDs, contact the office now to schedule a time to talk or visit our calendar at www.calendly.com/kfn to select a time that works for you.
1)Roth accounts are not subject to RMDs.
2)”Retirement plan and IRA required minimum distributions FAQs.” IRS.gov, 19 AUG 2024, https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs.
3)”Premiums: Rules for Higher-Income Beneficiaries.” SSA.gov, https://www.ssa.gov/benefits/medicare/medicare-premiums.html, Accessed 26 AUG 2024.