Oh, blessed retirement. We all look forward to it, right? It’s a time to reap the rewards of the years we’ve been working. But remember, that doesn’t mean that being retired doesn’t also mean having fiscal responsibilities with the administration.
That’s why the IRS wants to remind retirees over 73 years of age that they must make Required Minimum Distributions (RMD) before the end of this year 2024.
What are MRDs and why are they mandatory?
RMDs are amounts of money that owners of some retirement plans (not all!) must withdraw annually. Likewise, these earnings have to be justified on the tax return because the IRS considers them taxable income, so they will most likely affect the tax burden.
This means that retirement funds cannot remain in your retirement plan account forever, even as “savings,” so retirees must withdraw distributions from their SEP IRA, SIMPLE IRA, or other retirement savings plan accounts when they reach age 73.
Are there conditions for the RMD?
Of course, on the one hand, there is an age limit for these mandatory withdrawals, so, as we have said before, 73 is the exact age at which the taxpayer must withdraw the accumulated funds from his pension. This is done, more than anything, to prevent the funds from remaining indefinitely without movement.
On the other hand, not complying with this withdrawal will cause the IRS to fine you significantly, for example, by eliminating 50% of the amount that has not been withdrawn within the stipulated deadlines.
Exception for Roth IRAs
The Internal Revenue Service stated that they are not required to make distributions from Roth IRAs during the owner’s lifetime, however, after the owner’s death, beneficiaries will be required to meet the requirements. Therefore, you will need to follow these withdrawal rules if you are a beneficiary.
Remember that the RMD is only a minimum amount of money that you must withdraw each year and that you can get more money if you need it as long as you pay the taxes established by the IRS.
About the SECURE 2.0 Act
This new law is here to stay and the IRS has introduced these measures to modernize retirement plans and adapt them to the needs of modern retirees!
Previously, this plan was implemented when beneficiaries turned 72, however, it has been extended for one more year.
Tips for keeping up with tax obligations
- Consult a tax advisor to make sure you calculate the exact amount you need to withdraw
- Check that your account details are correct
FAQs
- What happens if I don’t make the required minimum distributions?
The IRS could impose a penalty equal to 50% of the money that was not withdrawn.
- Are Roth IRAs exempt from RMDs?
Yes, as long as the holder is alive, but when the holder dies, the beneficiaries will have to take over the RMD.
- How does the SECURE 2.0 Act affect RMDs?
It will increase the mandatory age to begin distributions from 72 to 73.
- Is it possible to withdraw more money than the required minimum?
Yes, as long as you pay the corresponding taxes.