Am I Required to Take an RMD This Year?
Category: Financial and taxes in retirement
December 7, 2023 – Some people ask, am I required to take an RMD this year (Required Minimum Distribution) from my IRA or 401(k)? It is a good question because of recent changes in the law (SECURE 2.0). The actual answer depends on your age. If you were born in or before 1950, YES, you must take one. If you were born Jan. 1, 1951 or later, you are not required to take one this year. The new age for taking the distributions is 73.
Required to take an RMD this year?
Again, if you are required to take an RMD this year, it depends on your birthday. If you hit the age of 72 in 2023 you can postpone your first RMD until April 1, 2025. But you could take it in 2024 to avoid having to pay taxes on two RMDs in the same year (you would have a second one by Dec. 31, 2025 for the 2024 year).
If you reached age 72 in 2022 your first RMD had to be taken by April 1 of this year, and you must take a second RMD by the end of 2023 (time is running short!). People older than than that came under the previous law; they have had the RMD requirement since they turned 70.
What types of plans have Required Minimum Distributions?
RMD rules include many types of employer-sponsored retirement plans. Those include traditional IRAs, SEPs, SIMPLE IRAs, 401(k) plans, 403(b) plans, and 457(b) plans. RMD distributions from these accounts are taxable as ordinary income. Starting in 2024, Roth 401(k)s do not require RMDs any longer. Inherited IRAs have a different set of rules, which were also changed by SECURE 2.0.
How do you take an RMD?
It is quite easy to take your Required Minimum Distributions. Whoever manages your retirement accounts will send you statements and notices, telling you how much you must take out. They can assist you in withdrawing the correct amount. The problem gets trickier if you have retirement accounts with several different organizations. In that case you will have add them up to calculate the total amount required.
Tax and other issues with RMDs.
Any amount you take out is treated as ordinary income. Some people try to transfer funds to a Roth type account, particularly if their other income is low or tax losses high. Another issue is that you might have to pay more in Medicare Part B premiums if these distributions push you about certain base levels (couples with more than $206,000 in modified gross income – see chart on income adjustments).
Give to a charity. Particularly if you are going to give money to a charity anyway, send the money as part of your RMD. You can donate up to $100,000 this way, and it won’t count as taxable income.
Bottom line – Am I required to take an RMD this year?
The answer depends on your age. If you were born after Jan. 1, 1951, you do not have to take one in 2023. But, if you are required to take an RMD this year, time is running short. Get on it now and avoid hefty penalties (missed withdrawals have a 25% penalty in 2023 – down from 50% last year).
Comments? Are you confused by the new RMD rules – or is this a very easy thing to take care of? Please comment in the section below.
Comments on "Am I Required to Take an RMD This Year?"
Louise says:
This is an easier way to see year of birth and age RMD required:
RMD Beginning Ages
Birth Date or Year Age
7/1/1949 to 1950 72
1951 to 1959 73
1960 or later 75
Admin says:
Thanks Louise. Very helpful.
JCarol says:
The combination of this article plus Louise's quick info on RMD beginning dates are the clearest, simplest to understand explanations I've seen yet. Including information from my financial advisor.
Will says:
I’m 79 years old, February 1944, and I inherited my wife’s IRA after she died in April 2012. She was born In September 1953, and as of September 2023, she would now be 70 years old. With the Secure 2.0 Act of 2022, what year do I start taking a RMD on my inherited IRA (aka her IRA)?
Louise says:
It looks like if you are the beneficiary, the RMD would be calculated on your deceased spouse's age. Her year of birth is 1953 which makes her RMD age 73. So year 2026 would be the first year of RMD.
Once the RMD liability of the deceased is sorted out, a spouse has a few options for taking control of the inherited IRA.
• Remain a beneficiary of the IRA. The account is treated as an inherited IRA and future RMDs are based on the age of the deceased original owner. If the deceased was not yet 72, and the surviving spouse is, this option can delay the need to begin taking RMDs.
• Become the owner of the IRA. Future RMDs are based on the life expectancy of the new owner, and do not need to begin until age 72. If the surviving spouse is younger than the deceased spouse, and is not yet 72, this option delays when RMDs must begin. That said, if the surviving spouse wants to take withdrawals from a traditional IRA before age 59 ½, the withdrawal will be taxed as ordinary income, but the typical 10% early withdrawal penalty will not be charged.
• Roll over the money into an existing IRA. RMDs will then be based on the age of the owner. But if the inheriting spouse wants to make withdrawals before age 59 ½, the 10% early withdrawal penalty will be levied—in addition to any applicable income tax.
https://www.forbes.com/advisor/retirement/inherited-ira-rmd-rules/
I am not an expert but this is how I interpret this article. I also have a stretch IRA inherited from my Mom. At the time of her death in 2013 she was already paying RMD's. When I inherited it, I had to continue each year. I only pull out the required amount and let the rest ride.
Admin says:
Thanks Will for a great question and to Louise for the helpful followup, In general, beneficiaries of inherited IRAs are subject to the 10 year rule, and cannot "stretch" out distributions like in the past. But the whole subject is very complex depending on individual circumstances, with some of the new rules delayed until 2025. Consult with a tax professional to be sure. This article has additional help: https://www.kiplinger.com/taxes/inherited-ira-four-things-beneficiaries-should-know#
Louise says:
I don't claim to be an expert and have just done internet searches. I would suggest Will go to a CPA or financial advisor. Here is some more information which seems to indicate that when the beneficiary spouse begins to pay RMD's based on his deceased wifes account, he has the choice of using her age or his age once starting the yearly RMD process.
Surviving Spouse Acts As the Beneficiary
RMDs are based on the life expectancy of the IRA owner.
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Spousal beneficiaries can plan the RMDs from an inherited IRA to take advantage of delaying the RMDs as long as possible.
If the IRA owner dies before the year in which they reach age 73, distributions to the spousal beneficiary don't need to begin until the year in which the original owner reaches age 73.
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After this, the surviving spouse's RMDs can be calculated based on their life expectancy. This can be helpful if the surviving spouse is older than the deceased spouse since it delays RMDs from the inherited funds until the deceased spouse would have turned age 73.
If the original owner had already started getting RMDs or reached their RBD, the age at which they had to begin RMDs, at the time of death, the spouse can continue the distributions that were originally calculated based on the owner's life expectancy.
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Internal Revenue Service. "Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs)," Page 9.
The surviving spouse can also submit a new RMD schedule based on their life expectancy. This process would mean applying the life expectancy for their age found in the Single Life Expectancy Table (Table I in Appendix B of IRS Publication 590-B).
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https://www.investopedia.com/articles/personal-finance/102815/rules-rmds-ira-beneficiaries.asp