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Remember These 2 RMD Rule Changes for 2024

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Remember These 2 RMD Rule Changes for 2024

In recent years, required minimum distributions (RMDs) have undergone several changes, making it essential for individuals to familiarize themselves with the latest rules ahead of 2025. Retirement accounts, such as 401(k)s and IRAs, provide significant tax advantages but also impose strict regulations concerning contributions, investment options, and withdrawals.

Previously, mandatory annual withdrawals began at age 70 1/2. This threshold was later raised to age 72, and last year, it was further increased to 73. This year, two notable changes to RMDs have been introduced, potentially easing the process for retirees.

Firstly, RMDs are no longer mandatory for Roth 401(k)s and Roth 403(b)s. Although Roth IRAs have always been exempt from RMDs, Roth 401(k)s and 403(b)s required these distributions, despite being funded with after-tax dollars. While participants could circumvent this by transferring their funds into a Roth IRA, this additional step is no longer necessary. All Roth retirement accounts are now exempt from RMDs, allowing individuals to retain their funds indefinitely.

However, the IRS continues to require RMDs from tax-deferred savings in traditional 401(k)s, 403(b)s, and IRAs for adults aged 73 and older. For those turning 73 in 2024, the deadline to make their RMD for that year is April 1, 2025. In subsequent years, RMDs must be completed by December 31.

Secondly, limits for qualified charitable distributions (QCDs) are increasing. QCDs offer an alternative to traditional RMDs for individuals who do not need the funds for personal use and prefer to avoid additional taxes. In 2023, the QCD limit was $100,000, which will rise to $105,000 in 2024, with future adjustments indexed to inflation. While most individuals may not be significantly affected, wealthier retirees stand to benefit from this increase.

To perform a QCD, individuals should first select a tax-exempt charity according to the IRS guidelines. Next, they must instruct their retirement account provider to transfer the funds directly to the chosen charity to qualify as a QCD. A written acknowledgment from the charity, outlining the donation date and amount, should be obtained to provide proof if audited by the IRS.

For any RMD-related inquiries, it is advisable to consult with a tax professional promptly. With the December 31 deadline approaching, those who have not yet addressed their RMDs for 2024 should establish a plan without delay.

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