The Internal Revenue Service (IRS) has announced that retirees must withdraw larger amounts from their retirement accounts this year due to the record stock market gains in 2023. Fidelity Investments predicts that the total required minimum distributions (RMDs) will exceed $25 billion in 2024, the highest ever. RMDs are the minimum amount that retirees must withdraw annually from their retirement accounts, such as IRAs or 401(k)s.
The SECURE 2.0 Act, enacted last year, raised the age at which retirees must start taking RMDs from 72 to 73. Rita Assaf, vice president of retirement products at Fidelity, stated, “As more clients become eligible and the market peaks on Dec. 31, 2023, RMDs in 2024 are expected to be the highest ever.”
Retirees should be aware of four key factors regarding RMDs:
1.
RMDs are taxable as ordinary income, which may push retirees into a higher tax bracket, increase Medicare premiums, and affect other tax breaks. 2.
Rising RMDs impact retiree finances
Failing to take RMDs or withdrawing less than the required amount can result in a 25% penalty on the amount not withdrawn. However, the penalty may be reduced if the mistake is corrected within two years. 3.
Retirees cannot avoid RMDs, but they can reinvest the money or put it in a high-yield savings account to earn interest. 4. RMDs are not required for Roth IRAs, except when inherited from someone else.
Roth IRA contributions are made with after-tax dollars, and investment profits are tax-free if the account holder is at least 59½ years old and has held the account for five years. Retirees must take their RMDs by December 31 each year after turning 73. It is crucial for retirees to understand these factors to make informed decisions about their retirement income and avoid potential penalties.
