Rules for RMDs have changed—here’s a guide on when and how to take them

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Rules for RMDs have changed—here’s a guide on when and how to take them

With the recent changes to the rules for Required Minimum Distributions (RMDs), individuals reaching the age of 72 are now faced with new considerations when it comes to managing their retirement accounts. Previously, the age for starting RMDs was 70 ½, but this has been increased to 72.

Understanding the new requirements

It is essential for those affected by the new rules to have a clear understanding of the revised requirements to ensure they comply with the law. Failure to take RMDs when required can result in hefty penalties, so staying informed is crucial.

Determining when to start taking RMDs

Under the new rules, individuals who turned 70 ½ before January 1, 2020, are still subject to the old requirement and are required to take their first distribution no later than April 1 of the year after turning 70 ½. However, for those who turned 70 ½ after December 31, 2019, the new age of 72 applies, and they must take their first RMD by April 1 of the year after turning 72.

Calculating your RMD amount

To calculate the amount of your Required Minimum Distribution, you need to determine the balance of your retirement accounts as of December 31 of the previous year. This amount is then divided by your life expectancy factor, which can be found in the IRS’s Uniform Lifetime Table.

Options for taking your RMDs

Once you have determined when to start taking RMDs and how much you need to withdraw each year, you now have some flexibility in how you choose to receive your distributions. There are several options available to you, including taking the entire required amount in one lump-sum payment, spreading it out evenly throughout the year, or even donating it to a qualified charity.

Be aware of potential tax consequences

While RMDs are generally subject to income taxes, some distributions may be partially or fully excluded from taxation if they meet certain criteria. For example, Qualified Charitable Distributions (QCDs) allow individuals to donate their RMDs directly to a charity, which can result in tax savings.

Consult a financial advisor

Navigating the complex world of RMDs can be challenging, especially with the recent changes to the rules. It is highly recommended that individuals seeking guidance on when and how to take their RMDs consult with a qualified financial advisor who can provide personalized advice based on their unique circumstances.

The importance of staying informed

Staying up-to-date with the latest changes in retirement account regulations is vital to ensure compliance and avoid unnecessary penalties. By understanding the rules surrounding RMDs, individuals can make informed decisions that best suit their financial goals and retirement plans.

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