Weekend Read – 2024 Year-End RMDs and Updates
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As we approach the end of the year, it's a good time to talk about Required Minimum Distributions (RMDs). These are the withdrawals the government requires you to take from your IRA(s) each year once you reach a certain age. If you’re over 73 or have an inherited IRA from before 2020, this rule applies to you. Starting in 2025 if you inherited an IRA after 2019 this will also apply to you, but we’ll come back to that later.
The amount you need to withdraw is automatically calculated based on the value of your IRA at the beginning of the year and your age. As you age, the IRS increases the size of the portion they want you to distribute. Also, for most people, we automatically withhold an agreed percentage and send it to the gov’t for taxes.
For some of you, I’ve been sending a monthly check and we have calculated exactly how much you need to satisfy the exact requirement. For others, there is an outstanding amount that we’ll need to distribute by year end. Those people will receive a call from me after Thanksgiving if we haven’t already discussed it.
For those who are charitable - Qualified Charitable Distribution (QCD)2
There’s a tax-savvy strategy worth considering if you’re charitably inclined and subject to Required Minimum Distributions (RMDs). It’s called a Qualified Charitable Distribution (QCD), and it allows you to give to your favorite charities directly from your IRA. The big advantage? You won’t pay income taxes on the amount donated.
Here’s how it works: if you’re 73 or older, you can send funds directly to a qualified charity of your choice. These donations count toward satisfying your RMD for the year but aren’t included in your taxable income. This can be especially helpful if you don’t need the full RMD for living expenses and would rather see that money go toward supporting causes you care about.
A QCD reduces your taxable income, which can help you avoid jumping into a higher tax bracket or triggering other income-related costs, like Medicare surcharges.
There are a few rules to keep in mind. The maximum QCD allowed is $105,000 (in 2024) per person per year, and the donation must go to a 501(c)(3) charitable organization. It’s also crucial to ensure the funds go directly from your IRA to the charity; if the money touches your bank account first, it won’t qualify as a QCD.
If a QCD sounds like a good fit for your financial situation and charitable goals, now is a great time to explore it. The end of the year is fast approaching, and it’s important to get everything squared away before December 31 to count for this year’s taxes.
Inherited IRA RMD Rule Update3
*You only need to read this section if you inherited an IRA after 2019*
Earlier this year, the IRS clarified regulations under the SECURE Act regarding inherited IRAs and Required Minimum Distributions (RMDs).
Starting in 2025, non-spouse inherited IRAs will have a RMD. That amount will be automatically calculated and need to be distributed before the year ends. Each year, a new amount will be calculated based of the account balance at the beginning of the year and the RMD factor. By the end of the 10th year, the entire value of the account will have to be distributed.
How is the RMD calculated1
When a designated beneficiary inherits an IRA, they have the option to calculate Required Minimum Distributions (RMDs) based on the longer of two life expectancy figures: their own or the decedent’s remaining life expectancy. This flexibility can impact how much the beneficiary must withdraw annually and how long the IRA can continue to grow tax-deferred.
Let’s break it down with an example. Suppose the decedent was 80 years old at the time of death, with a remaining life expectancy of 10.2 years according to the IRS life expectancy table. The beneficiary, who is 50 years old, has a life expectancy of 34.2 years based on their age. The beneficiary would use their own (longer) life expectancy, the calculation would divide the balance by 34.2 resulting in an RMD of 2.92% of the account balance at the beginning of the year, which is significantly less than what it would have been if the RMD had been based of the decedents life expectancy.
At the beginning of 2025, I will have the correct calculated amount to share with you.
Inherited Roth IRAs are slightly different. Since original Roth owners are not subject to RMDs, their beneficiaries are only required to fully distribute the account within 10 years, with no mandatory annual withdrawals during that period.
Below are two more thorough articles I wrote on the subject that you may be interested in:
Things To Consider With Inherited IRAs
Updated IRS Inherited IRA RMD Ruling
Next Years RMD
As we head into 2025, I’ll have your updated Required Minimum Distribution (RMD) amounts ready at the start of the year. Once those figures are finalized, I’ll reach out to go over the details and help you plan your distributions in a way that fits your needs. Whether you prefer to take the full amount upfront, spread it out monthly, or wait until later in the year.
For those who prefer to take the full RMD at the beginning of the year, we can arrange that right away, giving you the flexibility to use those funds as needed. If you’d rather receive monthly distributions, we’ll break the total RMD into predictable amounts, ensuring the full requirement is met by year-end. And for those who don’t need the income right away, we can leave the money in your account as long as possible, allowing it the opportunity to grow throughout the year before taking the full distribution closer to year-end. I’ll make sure the process is seamless and fully compliant with IRS rules.
If you’ve only recently joined my email list, you’ve missed out on many insights and updates that I've been sharing each week. Be sure to visit my blog to explore past content that you might find valuable.
1 https://www.irs.gov/pub/irs-pdf/p590b.pdf
2https://www.irs.gov/newsroom/give-more-tax-free-eligible-ira-owners-can-donate-up-to-105000-to-charity-in-2024
3https://www.federalregister.gov/documents/2024/07/19/2024-14542/required-minimum-distributions
Individuals are encouraged to consult their tax and legal advisors (a) before establishing or changing a Retirement Account, and (b) regarding any potential tax, ERISA and related consequences of any investments or other transactions made with respect to a Retirement Account. Tax laws are complex and subject to change. Steward Partners does not provide tax or legal advice.
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