What You Need to Know: How the Final RMD Regulations Will Affect Your Financial Planning
- Most beneficiaries must continue receiving annual Required Minimum Distributions (RMD) and fully distribute the account within 10 years
- RMDs must resume in 2025
- RMDs begin at age 73 for individuals born in 1959
Background & Details
The 2019 SECURE Act made widespread changes to retirement accounts. Proposed regulations were issued in 2022 that further changed the treatment of these accounts. The new laws replaced the old “stretch” IRA option with a requirement to zero out the inherited retirement account by the 10-year mark. The final regulations clarify that if the original account owner had reached the RMD age, the beneficiaries must continue to take RMDs in the year of death and each following year with the account fully distributed by the 10-year mark.
Generally, RMDs are required to begin based on the account owner’s birthdate.
The final regulations clarify these dates:
- Born before July 1, 1949, the applicable age is 70 ½
- Born on or after July 1, 1949, and before 1951, the applicable age is 72
- Born in 1951 to 1959, the applicable age is 73
- Born in 1960 or later, the applicable age is 75
Most beneficiaries who inherit a retirement account from someone who has not reached the RMD age will only be required to empty the account by the 10-year mark. The annual distribution requirement does not apply to these inherited accounts.
The IRS issued penalty relief for 2022, 2023 and 2024. With the issuance of the final regulations, you should plan to take RMDs beginning in 2025. Further, you should discuss the most advantageous way to structure your distributions to minimize taxes over the ten-year window with your advisor.
The 260-page final regulations also clarify multiple beneficiaries, spousal elections, successor beneficiaries, and trusts. These rules are fact-specific and apply only to certain taxpayers.
Takeaways
- Plan to start your RMD in the year following your required start date
- Plan to resume RMDs in 2025 on your inherited retirement accounts
Remember, individual planning needs may vary, so seek personalized advice from your financial advisor. If you have any further questions, feel free to ask! 😊
Sources:
https://www.federalregister.gov/documents/2024/07/19/2024-14542/required-minimum-distributions
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