By Theresa Cagle Fry, Senior Vice President and Manager IRAs, Retirement & Education Planning
Print This Post
If you have an IRA or workplace retirement plan, like a 401(k), as you get older, it’s important to plan for taking required minimum distributions, or RMDs. RMDs are annual distributions that you must take once you reach an applicable age or can apply at any age if you inherit a retirement account from someone.
RMDs Generally Start at Age 73, But Exceptions Apply
For traditional IRAs, SEPs and SIMPLE IRAs, RMDs now begin at age 73. (Note: If you were born in 1960 or later, your RMDs begin at age 75.) RMDs for 2024 can be taken at any time during the year, but generally no later than December 31. However, if this is your first RMD year you have the option to delay taking your RMD, but not any later than April 1, 2025. If you elect to delay your first RMD, keep in mind that you will have to take two RMDs next year (one for year one and one for year two).
The same general rules apply to your workplace retirement accounts, such as 401(k), 403(b), or 457(b) plans, with a few exceptions. If you are still working for the employer that provides the retirement plan, RMDs don’t usually have to begin at age 73. They will begin once you separate from service or retire if you are age 73 or older. However, if you are still employed and own 5% or more of the business, or if you are no longer working for the employer offering the retirement plan, you’ll need to make sure you take your RMD for 2024.
RMD Rules for Inherited Retirement Accounts
For inherited IRAs, the rules are a bit trickier. If you inherited an IRA or retirement plan from someone who died in 2019 or earlier, you are generally required to take an annual RMD from the inherited retirement account. However, if the original retirement account owner died in 2020 or later, annual RMDs may not apply because of the 10-year rule.
The 10-year rule requires most non-spouse beneficiaries to completely distribute the inherited retirement account by the end of the 10th year following the account owner’s death. Some non-spouse beneficiaries must take annual RMDs in addition to depleting the account by the end of the 10th year, while others are not required to take any distributions until year 10. Consult with your tax professional for guidance on what action you should take this year if you recently inherited a retirement account.
The 10-year rule does not apply to a surviving spouse, or to non-spouse beneficiaries who are disabled, chronically ill, not more than 10 years younger than the account owner or are minor children of the account owner. For these “eligible” designated beneficiaries, annual RMDs must begin in the year following the year of death.
Qualified Charitable Distributions (QCDs) Are Available at Age 70½
RMDs are typically included in your taxable income. However, if your IRA distribution meets the requirements to be a QCD, then the distribution is tax free. A QCD is a direct gift out of your IRA to a qualified charity in amounts up to $105,000 this year. Check with your tax advisor or the charity before acting to make sure it qualifies.
QCDs do not increase your taxable income and therefore will not increase your adjusted gross income and can be a tax-efficient strategy even if you do not itemize. However, a QCD must be completed by the end of the year to impact your 2024 tax return.
QCDs can only be made from traditional IRAs–not from a 401(k) or other employer-sponsored retirement plans, including SEP and SIMPLE IRAs. And you must be at least age 70 ½ (six months past your 70th birthday) at the time you make the gift, whether you are the IRA owner or the beneficiary of an inherited IRA. Therefore, you can do a QCD even if you are not subject to RMDs. Keep in mind, too, your QCD can be up to $105,000 even if your RMD is less than that amount.
A QCD also includes the ability to make a one-time direct gift from the IRA to a “split-interest entity” in an amount up to $53,000. This includes gifts to a charitable gift annuity, charitable remainder unitrust or charitable remainder annuity trust. Talk with your legal or tax professional about the requirements if this is of interest to you. Both QCD amounts are now subject to cost-of-living adjustments. In 2025, they increase to $108,000 and $54,000.
Make sure you talk to your financial advisor soon if you would like more information about RMDs, QCDs or any of our year-end planning strategies.
IMPORTANT DISCLOSURES: The information provided is based on internal and external sources that are considered reliable; however, the accuracy of this information is not guaranteed. This piece is intended to provide accurate information regarding the subject matter discussed. It is made available with the understanding that Benjamin F. Edwards is not engaged in rendering legal, accounting or tax preparation services. Specific questions on taxes or legal matters as they relate to your individual situation should be directed to your tax or legal professional.