Required minimum distributions (RMDs) have long been a critical aspect of retirement planning, dictating when individuals must begin withdrawing funds from their tax-deferred retirement accounts. In the past, RMDs typically commenced at age 70 and 1/2 for those born before July 1949, or at age 72 for individuals born between July 1949 and December 1950. However, recent legislative changes have altered this timeline, with the Secure 2.0 Act raising the starting age to 73 for those born in 1951 or later.
The RMD regulations apply to various types of retirement accounts, including Traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k) plans, 403(b) plans, 457(b) plans, profit-sharing plans, and other defined contribution plans. These rules generally require account holders and beneficiaries to complete their RMDs by December 31 each year, though exceptions exist. For example, individuals can delay their first RMD until April 1 of the following year, but they must still take their second RMD by December 31 of that same year.
As of 2024, individuals born in 1951 or later are mandated to start taking RMDs from their tax-deferred retirement accounts annually in the year they turn 73. Notably, the initial RMD can be postponed until April 1 of the following year, meaning those who turn 73 in 2024 must complete their first RMD by April 1, 2025. Regardless of the delay in the first withdrawal, the second RMD must be fulfilled by December 31, 2025.
A significant change in 2024 pertains to Roth 401(k) and Roth 403(b) plans no longer being subject to RMD rules during the original account holder’s lifetime. However, upon the account holder’s passing, beneficiaries become subject to RMD requirements. Furthermore, while designated Roth accounts in these plans were previously subject to RMD rules in 2023, the Secure 2.0 Act altered this in 2024, relieving account holders from mandatory withdrawals during their lifetimes. Nevertheless, beneficiaries, including those of Roth IRAs, are still obligated to adhere to RMD regulations.
Failure to withdraw the full RMD amount by the due date carries consequences in the form of an excise tax. This penalty entails forfeiting a percentage of the undrawn amount and still necessitates completing the full RMD. The excise tax was initially set at 50% before 2023 but was reduced to 25% under the Secure 2.0 Act. Further mitigation to 10% is possible if the discrepancy is rectified within two years. Any individual facing this scenario must file a Form 5329 with their federal tax return for the year in which the RMD was due but not taken.
