IRS Reminds Taxpayers 73 and Older to Take RMDs by Dec. 31
The IRS has reminded taxpayers 73 and older to take their required minimum distributions (RMDs) from individual retirement arrangements (IRAs) and other retirement plans by December 31, 2024. This reminder aligns with updates introduced under the SECURE 2.0 Act. (IR 2024-309, 12/10/2024).
Mandatory distributions. RMDs are mandatory annual withdrawals for many retirement plan account holders and are considered taxable income. If a taxpayer fails to withdraw the required amounts on time, it could lead to penalties.
In particular, account owners could face a 25% excise tax on the amount not withdrawn. However, this excise tax rate is reduced to 10% if the error is corrected within two years.
The IRS provides worksheets for calculating RMDs, and account owners may also rely on plan administrators, but ultimately, the responsibility lies with the account holder.
Note. Those turning 73 in 2024 have extra time to take their first RMD.
Reporting RMD failures. Account owners not taking RMDs must file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with their federal tax return for the year to report the total amount of the RMD that was required but not taken.
SECURE 2.0 updates. The SECURE 2.0 Act, signed in December 2022, raised the starting age for RMDs to 73 and eliminated RMDs for Designated Roth accounts in 401(k) and 403(b) plans beginning in 2024.
Who must take RMDs? The minimum distribution rules typically apply to both original account holders and their beneficiaries for the following types of plans:
Inherited retirement accounts. Individuals who inherit IRAs or retirement accounts may also be required to take RMDs. However, distribution requirements may vary based on factors such as the original account owner's death date and the individual's relationship to the owner.
For detailed guidance and resources, taxpayers can access forms and publications on the IRS website to ensure compliance with RMD requirements.
Mandatory distributions. RMDs are mandatory annual withdrawals for many retirement plan account holders and are considered taxable income. If a taxpayer fails to withdraw the required amounts on time, it could lead to penalties.
In particular, account owners could face a 25% excise tax on the amount not withdrawn. However, this excise tax rate is reduced to 10% if the error is corrected within two years.
The IRS provides worksheets for calculating RMDs, and account owners may also rely on plan administrators, but ultimately, the responsibility lies with the account holder.
Note. Those turning 73 in 2024 have extra time to take their first RMD.
Reporting RMD failures. Account owners not taking RMDs must file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with their federal tax return for the year to report the total amount of the RMD that was required but not taken.
SECURE 2.0 updates. The SECURE 2.0 Act, signed in December 2022, raised the starting age for RMDs to 73 and eliminated RMDs for Designated Roth accounts in 401(k) and 403(b) plans beginning in 2024.
Who must take RMDs? The minimum distribution rules typically apply to both original account holders and their beneficiaries for the following types of plans:
- Withdrawals from traditional IRAs and IRA-based plans occur every year once people reach age 73, even if they're still employed.
- Withdrawals from employer-sponsored plans must also be taken annually after retirement; however, participants owning more than 5% of the sponsoring business must take RMDs starting at age 73 even if they are still working.
Inherited retirement accounts. Individuals who inherit IRAs or retirement accounts may also be required to take RMDs. However, distribution requirements may vary based on factors such as the original account owner's death date and the individual's relationship to the owner.
For detailed guidance and resources, taxpayers can access forms and publications on the IRS website to ensure compliance with RMD requirements.