RMDs required for many IRA beneficiaries this year
The SECURE Act went into effect
Jan. 1, 2020. If you inherited an IRA after that date, you have not been required to take required minimum distributions, or RMDs.
In 2024, however, RMDs are required for many beneficiaries. Some beneficiaries, such as surviving spouses, are categorized as eligible designated beneficiaries, or EDBs. If you are a designated beneficiary, but not an EDB, and you inherited a traditional IRA, then whether you must take RMDs in 2024 is based on whether the deceased owner of the IRA had reached his/her required beginning date, or RBD, which is when retirement savers must begin taking RMDs from their 401(k) or IRA. If the owner had reached the RBD, then you are required to take RMDs based on your single life expectancy table, which is contained in IRS publication 590-B.
You do not have to take RMDs for previous years, but you should base your RMD as if you had been taking RMDs in prior years. For example, if your life expectancy was 20 years two years ago when you would have taken your first RMD, you would subtract 2 from 20, and use 18 as your life expectancy for your 2024 filing.
If the deceased owner of the IRA had not reached his/her RBD, then you are not required to take an RMD in 2024. However, you are required to liquidate the IRA by the end of the 10th year after the death of the IRA owner. The 10-year rule is applicable to beneficiaries after Jan. 1, 2020.
If you inherited a Roth IRA, and you are a non-EDB, no RMD is required in 2024. However, the 10-year rule detailed above is applicable.
If you are a surviving spouse, you are allowed to use the “stretch” option over your lifetime, and the 10-year rule is not applicable, unless you elect to use it.
The SECURE 2.0 Act, enacted at the end of 2022, changed many of the rules affecting IRAs. The following are significant ones, according to IRA expert Ed Slott.
RMD starting age changed from 72 to 73; in 2033 the starting age is 75.
RMDs are no longer required from designated Roth accounts in employer-sponsored retirement plans.
When IRA owners die before RBD, the surviving spouse can choose to be treated as if she/he were the age of the deceased spouse.
A trust established for a disabled or chronically ill individual can use a life expectancy “stretch” even if a charity is named as the remainder beneficiary.
The maximum qualified longevity annuity contract, or QLAC, premium increased from $125,000 to $200,000, and would be adjusted in the future based on inflation changes.
Any IRA overage payment can be used to satisfy RMDs from other IRAs.
The penalty for inadequate RMDs decreased from 50% to 25% — or 10% if timed correctly.
For RMD shortfalls and excess contribution penalties, the statute of limitations begins when the taxpayer files a Form 1040 tax return for the relevant year.
There were new exceptions established related to the 10% excise tax on early distributions. Some examples were for federally established natural disasters up to $22,000; another example was uncapped distributions associated with terminal illness.
A qualified charitable contribution, or QCD, can be used to fund a charitable gift annuity; for 2024 the upper limit is $53,000.
If you are required to take RMDs in 2024, you should consider making distributions throughout 2024 rather than waiting until year’s end. This way, you can avoid the possibility of extreme market conditions either at the beginning or end of the year.