Required Minimum Distributions (RMDs) Raised to New Heights in 2024 – Here Are 4 Facts Retirees Need to Know

You’ve probably been diligently saving for retirement for decades and, hopefully, your retirement accounts are full of cash. If so, pat yourself on the back for a job well done.

If you’re nearing retirement, or already enjoying your golden years, it may soon be time to start taking required minimum distributions (RMDs) from your retirement accounts.

Don’t miss out

Here’s what you need to know.

What you need to know about RMDs

An RMD is the amount you must withdraw from your retirement accounts each year starting at age 73. As of last year, the passage of the Secure 2.0 Act effectively raised the minimum required distribution age from 72 to 73.

Despite the increase in the RMD age, RMDs have been “overbuilt” this year. Why? Record stock market gains last year, combined with the number of retirees required to start taking RMDs this year, have boosted RMDs significantly.

Fidelity Investments, one of the world’s largest financial services firms, estimates that its cumulative RMDs will reach a record $25 billion this year (wow!)

“Due to the growth of the market in December. 31, 2023, as well as having more clients now eligible, we anticipate that RMDs in 2024 will be the largest ever,” Rita Assaf, Fidelity’s vice president of retirement products, explained to CNBC Select.

So if you’re turning 73 this year (or just want to understand more before you hit that age), there are a few things you should know when it comes to your RMDs.

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Four key RMD facts

Here are four key facts all retirees should understand when it comes to taking RMDs, according to Fidelity Investments and CNBC.

• 1. RMDs are taxed as ordinary income. RMDs count as ordinary income no matter what. This means your AGI (adjusted gross income) will increase. On the other hand, you may be pushed into a higher tax bracket, you may have to pay higher Medicare premiums, your Social Security benefits may be taxed (depending on where you live), and you may lose other tax reliefs.

• 2. You will be penalized financially if you do not take the RMD. If you miss the deadline to start taking RMDs, or if you take less than your required amount, you’ll owe a hefty 25% penalty on the amount you were supposed to withdraw but didn’t end up withdrawing (yes !). However, the IRS may offer you leniency and reduce the penalty to just 10% if you correct the error within two years.

• 3. RMDs are inevitable. Once you turn 73, you must take RMDs by December. 31 each year. Although there is no way around it, you can take the money and put it to work. For example, putting money from your RMDs into a high-yield savings account to earn interest or reinvesting the money in other assets are two ways to grow your wealth even more.

• 4. Roth IRAs do not have RMDs (with one small exception). Since you’ve already paid taxes up front on your Roth IRA contributions, you won’t be required to take RMDs. Also, your investment earnings are 100% tax-free as long as you are at least 59 1/2 years old and have owned the account for five years. The only time you will need to take RMDs from a Roth IRA is if you inherited the account from someone else.

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What if you are still working?

If you’re still working at age 73 and participate in an employer-sponsored retirement plan, you won’t have to take RMDs. (However, you will still be required to take RMDs from other retirement plans you may have from former employers.)

One caveat: you’ll need to take distributions once you reach RMD age if your current employer’s plan specifically requires it or if you own more than 5% of the business you work for.

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This article provides information only and should not be construed as advice. Offered without warranty of any kind.