2024 RMD Rule Update: Impact on Retirement Income and Philanthropy
As 2024 progresses, it’s important to note some required minimum distribution (RMD) rule updates, especially if you’re nearing retirement. Whether you’re getting past new RMD age limits or considering your charitable giving strategy, these changes can impact your retirement income, taxes, and even Medicare costs.
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RMD can now be started at age 73
One of the biggest changes from the SECURE 2.0 Act is that it raised the starting age for RMDs. Previously, retirees had to start taking distributions from traditional IRAs and 401(k) accounts at age 72. Starting in 2024, the RMD age will increase to 73, allowing account holders to defer taxes and keep their funds growing for an additional year.
If you were born between 1951 and 1959, you must begin your RMDs at age 73. However, the SECURE 2.0 Act raised the RMD age to 75 in 2033, so people born after 1960 can delay starting their RMD until age 75.
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Will Medicare premiums go up?
One of the hidden costs of RMDs is a potential increase in Medicare premiums. Once you start taking RMDs, your taxable income will increase, potentially pushing you into a higher income bracket. If your income exceeds certain thresholds, your Medicare Part B and D premiums may increase.
Beware of penalties
Missing an RMD can result in significant penalties. Previously, the penalty for not withdrawing your RMD in full was 50% of the amount not withdrawn. However, thanks to the SECURE 2.0 Act, the penalty has been reduced to 25%. If you correct the mistake within two years, the penalty drops to 10%. Even that would be a big mistake, so it’s wise to stick to your RMD deadlines.
You can set up automatic withdrawals so you don’t miss any RMDs, or mark them on your calendar in advance so you don’t miss them.
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charitable giving opportunities
If you want to minimize your taxes while meeting your RMD obligations, donating to charity may be a smart option. In 2024, if you are age 70 1/2 or older, you can take a qualified charitable distribution (QCD) of up to $105,000 from your IRA. If donated to a qualified charity, this amount counts as an RMD and is not taxed as income.
Additionally, retirees can donate up to $53,000 to eligible charities through a charitable remainder trust or gift annuity. This can be a great way to meet your RMD requirements while still supporting the objectives you care about.
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Roth 401(k) RMD Relief
Another notable change in 2024 is that Roth 401(k)s will no longer be subject to RMDs. Previously, account holders had to roll their Roth 401(k) into a Roth IRA to avoid receiving distributions. Currently, Roth 401(k) and Roth IRA holders can skip RMDs and grow their investments tax-free in retirement.
The 2024 RMD rule changes provide new opportunities to manage your retirement income, minimize taxes, and plan your charitable giving. To use this latest information to help you maximize your retirement strategy, consider talking to a trusted financial advisor.
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This article, 2024 RMD Rule Update: Implications for Retirement Income and Philanthropy, originally appeared on Benzinga.com.
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