The Rules for RMDs Are Complicated. They Have Changed Yet Again.

For the fifth year in a row, changes to required minimum distribution rules have gone into effect in 2024 for owners of individual retirement accounts and 401(k)s.

If you have inherited retirement assets, have a Roth 401(k) or want to give tax-deferred retirement money to charity, you may be impacted by tweaks to this year’s rules for RMDs.

And if you turned 73 last year or this year, or are older, make sure you understand your RMD obligations—the penalty for not complying was reduced last year, but it’s still hefty at potentially 25% of any required distribution you fail to take.

In concept, RMDs are simple: At a certain age, you must begin withdrawing money that you have spent years saving on a tax-deferred basis so the government can collect revenues. The money you take out, other than any portion attributable to after-tax contributions, is subject to income tax.

But frequently changing rules in recent years can create confusion. Some changes have been mandated by permanent laws passed by Congress, while other measures came and went as part of Covid relief.

“I’ve never seen it more complicated than it is now to get money out of an IRA,” says Ed Slott, a Rockville Centre, N.Y., accountant who specializes in IRA advice. “The IRS writes regulation, then waives it, then changes rules. Why not make it simple?”

Here’s a look at the RMD rules, and the various changes in effect this year.

The RMD age threshold stands at 73

IRA owners must begin taking annual RMDs after turning 73. That age threshold rose from 72 and went into effect last year, after rising from 70 ½ in 2020. It will remain in effect until 2033, when it is scheduled to rise to 75.

The amount you must withdraw annually is based on your account size, your life expectancy, whether you are single or married, and other factors.

For example, if are you either unmarried, your spouse isn’t more than 10 years younger, or your spouse isn’t the sole beneficiary of your account, your annual RMD from a $500,000 account would be $19,607.84 if you are age 74, or $24,753.48 if you are 80. The percentage you must take each year rises as you get older.

If you turn age 73 this year, your deadline for taking your first RMD is April 1, 2025.

But advisors caution that postponing your first RMD could push you into a higher tax bracket. Only your first RMD can be postponed into the following year, so you would also have to take your 2025 RMD by the end of next year.

RMDs are also required from 401(k)s and similar tax-deferred accounts, unless you are still working for the employer sponsoring your plan.

If you are still on the payroll, and as long as you don’t own 5% or more of the company, you can wait to take RMDs from your plan until you retire.

If you have multiple tax-deferred retirement accounts, you must calculate your RMD from each, but you can make the total withdrawal from one account.

Roth 401(k)s are newly exempt from RMDs

Beginning this year, owners of Roth 401(k)s will no longer be required to take RMDS, but the rules are different for beneficiaries.

This change aligns Roth 401(k) rules with older Roth IRA rules—now, both accounts can be left to grow tax deferred for an owner’s lifetime.

But if you were required to take an RMD from your Roth 401(k) last year, even if it was your first RMD year and you had until April 1 of this year to take it, you still must fulfill that 2023 requirement.

Some Beneficiaries may be able to postpone withdrawals

Most non-spouse IRA beneficiaries are required to withdraw all assets from the inherited account by the end of the tenth year after receiving the inheritance.

But there is a stricter rule for non-spouse beneficiaries who inherited an IRA after Jan. 1, 2020, whose owners had already begun RMDs: In these cases, the IRS established a requirement for beneficiaries to continue taking annual RMDs during the 10-year drawdown period.

So far, though, the IRS has waived this stricter rule every year since 2020, and last week, it did so for 2024, enabling beneficiaries to skip annual RMDs as long as the inherited account has been emptied within a 10-year period.

More RMDs can be split between charitable strategies

As of 2024, charitably minded IRA owners have the option to give $105,000 of their IRA assets to charity—up from $100,000 last year—and have it count toward their RMDs, and $53,000 of that can be used to create a charitable trust or gift annuity.

Called a qualified charitable distribution (QCD), the donation of up to $105,000 isn’t included in taxable income.

A QCD directly to charity can be made annually, but IRA owners can only make one maximum allocation to a charitable trust or gift annuity. If you make a $53,000 QCD to a trust or annuity this year, you may not do so again.

With a charitable gift annuity, a charity invests your donation and pays you a fixed income stream for life. These have become more attractive as interest rates have gone up—the higher the interest rate, the higher the annual income.

“The benefit of these is that you give to charity and it throws back a little income in an annuity,” Slott says.

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