Required Minimum Distributions (RMDs) Have Skyrocketed: If your near retirement or already in it understanding Required Minimum Distributions (RMDs) is very important. RMDs are the minimum amount retirees need to take from their tax-deferred accounts each year after they hit certain age. Recently there were some big changes in RMD rules and 2024 has some of the biggest updates.
These changes include when retirees must start withdrawing, penalties for not taking RMDs and new rules for inherited IRAs. In this guide we will look at what has changed and how it can impact your retirement plan.
Overview of Changes in Required Minimum Distributions
| Aspect | Old Rule | 2024 Changes |
| RMD Starting Age | 72 | Increased to 73 in 2024 |
| Inherited IRA RMDs | Required annually | New options for inherited IRAs |
| Penalties for Missed RMDs | 50% | Reduced to 25% |
| RMD Calculation Factor | Based on IRS life table | No significant change |
| Roth 401(k) RMDs | Required starting age 72 | Removed from 2024 |
Key Changes to RMDs in 2024
The first major change for RMDs in 2024 is raising the starting age for distribution from 72 to 73. This will give retirees an extra year to let their savings grow tax-deferred. Also there are some important updates to inherited IRAs. Before beneficiaries of inherited IRAs had to take RMDs every year. But starting in 2024 there is more flexibility depending on the relation to the person who passed. For instance, non-spousal beneficiaries now have 10 years to withdraw all the money without taking annual withdrawals.
Another change that will make retirees happy is the reduction in penalties for missed RMDs. If you missed your RMD before, you would have to pay a huge 50% penalty on the amount you didnt take out. From 2024 that penalty is lowered to 25%. And if you catch the mistake quickly the penalty can drop to just 10%. Lastly, Roth 401(k) owners now dont have to worry about RMDs starting in 2024. This means you can let your Roth 401(k) funds grow as long as you want without mandatory withdrawals.
How to Calculate Your RMD
To calculate your RMD for 2024 is pretty simple but you need to be accurate to avoid penalties. First you need to find out the total value of your retirement accounts on December 31 2023. Then look at the IRS life expectancy table and find your life expectancy factor according to your age. For example, if you are 73 years old in 2024 your life expectancy factor will be 26.5.
Then you simply divide your account balance by this factor. So if your account has $500000 and your factor is 26.5 your RMD would be $18868. This calculation needs to be done every year since your balance and factor will change annually.
FAQs
What is the age for RMD in 2024
Starting in 2024 you need to begin taking RMDs at age 73. This gives you an extra year to let your retirement savings grow.
Are RMDs required for inherited IRAs in 2024
Yes but there are some big changes. Non-spousal beneficiaries dont have to take annual RMDs anymore but they must empty the account within 10 years. The rules depend on who the beneficiary is so its good to check what applies in your case.
How to calculate your RMD for 2024
Take your account balance as of December 31 2023 and divide it by your life expectancy factor from the IRS table. The result is the minimum you need to withdraw in 2024 to meet RMD requirements.
These RMD updates in 2024 are really important for retirees. Knowing when you need to start withdrawing and understanding the new rules for inherited IRAs will help you stay on track with your retirement planning. With the penalties reduced it also takes a little pressure off if you make mistakes. Be sure to review your plans so you can make the most of these changes.
