The Internal Revenue Service (IRS) is reminding retirees to make required minimum distributions (RMDs) for retirement plans by end of year, in light of new updates introduced in SECURE 2.0.
The new provision increases the age that account owners must begin taking RMDs to those 73 and older, while removing required withdrawals for designated Roth accounts in 401(k) and 403(b) retirement plans. Roth accounts in these retirement plans will not be subject to RMD rules while the account owner is still alive for 2024, states the IRS in its reminder.
According to the IRS, the minimum distribution rules apply to original account holders and their beneficiaries in the following retirement plans:
- IRAs: IRA withdrawals from traditional IRAs and IRA-based plans occur every year once people reach age 73, even if they’re still employed.
- Retirement plans: The RMD rules apply to employer-sponsored plans, with delays allowed until retirement unless the participants own more than 5% of the sponsoring business.
- Roth IRAs: Roth IRA owners are not required to take withdrawals during their lifetime, however beneficiaries are subject to the RMD rules after the account owner’s death.
While an IRA trustee or plan administrator may calculate the RMD, the account owner is ultimately responsible for ensuring the correct RMD is taken. To help retirees with calculations, the IRS is providing required minimum distribution worksheets to help estimate RMD amounts and payout periods.
Account owners should also file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with their federal tax return for the year the full amount of the RMD was required but not taken.
The IRS also added resource guidance for beneficiaries of inherited IRAs, retirement plan accounts, or Roth IRAs. For guidance on taking RMDs from an inherited account and reporting taxable distributions as part of gross income, beneficiaries can refer to Retirement Topics – Beneficiary and Required Minimum Distributions for IRA Beneficiaries.
Help for those in charge of the estate to complete and file federal income tax returns can be found in Publication 559, Survivors, Executors and Administrators. According to the IRS, the factors that affect the distribution requirements for inherited retirement plan accounts and IRAs include:
- Whether the account owner died after 2019, as the SECURE Act introduced new RMD rules for beneficiaries in these cases.
- The beneficiary’s relationship to the account owner and their specific characteristics, such as being a spouse, minor child, disabled or chronically ill individual, entity other than an individual.
- Whether the original account owner passed away before or after the date required to begin taking RMDs.
The announcement notes that if an account owner fails to withdraw the full amount of the RMD by the due date, the owner could be subject to a 25% excise tax on the amount not withdrawn. This 25% rate would be reduced to 10% if the error is corrected within two years.
SEE ALSO:
RMD Age Increases to 73 in 2023 Under SECURE 2.0
IRS Gives 2025 401(k) Contribution Limit a $500 Boost
IRS Issues Guidelines on Retirement Matches for Student Loan Repayments
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
