Issue Number: IR-2024-309
Inside This Issue
IRS urges many retirees to make required withdrawals from retirement plans by year-end deadline
WASHINGTON — The Internal Revenue Service today reminded those aged 73 and older of the deadline to take Required Minimum Distributions from Individual Retirement Arrangements (IRAs) and other retirement plans, and highlighted updates introduced by the SECURE 2.0 Act.
Required Minimum Distributions (RMDs) are amounts that many retirement plan and IRA account owners must withdraw annually. These withdrawals are considered taxable income and may incur penalties if not taken on time. The IRS.gov Retirement Plan and IRA Required Minimum Distributions FAQs webpage provides detailed information regarding the new provisions in the law.
SECURE 2.0 Act: The new law raised the age that account owners must begin taking RMDs, while eliminating RMDs for Designated Roth accounts in 401(k) and 403(b) retirement plans.
The minimum distribution rules generally apply to original account holders and their beneficiaries in these types of plans:
- IRAs: IRA withdrawals from traditional IRAs and IRA-based plans occur every year once people reach age 73, even if they’re still employed.
- Retirement plans: The RMD rules apply to employer-sponsored plans, with delays allowed until retirement unless the participants own more than 5% of the sponsoring business.
- Roth IRAs: Roth IRA owners are not required to take withdrawals during their lifetime, however beneficiaries are subject to the RMD rules after the account owner’s death.
Designated Roth accounts in a 401(k) or 403(b) plan will not be subject to the RMD rules while the account owner is still alive for 2024. The RMD Comparison Chart outlines key RMD rules for IRAs and defined contribution plans.
Penalties for missed distributions
If an account owner fails to withdraw the full amount of the RMD by the due date, the owner is subject to a 25% excise tax on the amount not withdrawn. The 25% excise tax rate is reduced to 10% if the error is corrected within two years.
RMD calculations
IRA trustees or plan administrators must either report the RMD amount to the account owner or offer to calculate it. Each IRA plan’s RMD must be calculated separately, however owners can withdraw the total required amount from one or more accounts of their choice as long as the annual requirement is met. An IRA trustee or plan administrator may calculate the RMD, but the account owner is ultimately responsible for ensuring the correct RMD is taken. The IRS provides required minimum distribution worksheets to help calculate the RMD amounts and payout periods.
Account owners should file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with their federal tax return for the year the full amount of the RMD was required but not taken.
Inherited IRAs
Beneficiaries of inherited IRAs, retirement plan accounts, or Roth IRAs may be required to take RMDs. For guidance on taking RMDs from an inherited account and reporting taxable distributions as part of gross income, refer to Retirement Topics – Beneficiary and Required Minimum Distributions for IRA Beneficiaries. Help for those in charge of the estate to complete and file federal income tax returns can be found in Publication 559, Survivors, Executors and Administrators. The factors that affect the distribution requirements for inherited retirement plan accounts and IRAs include:
- Whether the account owner died after 2019, as the SECURE Act introduced new RMD rules for beneficiaries in these cases.
- The beneficiary’s relationship to the account owner and their specific characteristics, such as being a spouse, minor child, disabled or chronically ill individual, entity other than an individual.
- Whether the original account owner passed away before or after the date required to begin taking RMDs.
Taxpayers can find easy-to-use tools such as forms, instructions and publications at IRS.gov.
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