Retirement can be an exciting time as you plan for your future; however, it also brings with it many important decisions. One key decision is understanding and managing your Required Minimum Distribution (RMD). A required minimum distribution is the amount of money that must be taken from certain retirement accounts each year in order for the account owner to avoid the associated tax penalties.
What is a Required Minimum Distribution (RMD)?
A required minimum distribution, or RMD, is the amount of money that must be withdrawn from certain retirement accounts each year in order to avoid IRS tax penalties. The main types of retirement accounts subject to RMDs include Traditional Individual Retirement Accounts (IRAs), 401(k)s, and 403(b)s. The amount of money that needs to be withdrawn depends on a variety of factors including the age of the account holder, their life expectancy, and the value of their retirement accounts. Generally speaking, younger account holders will have lower RMD amounts than older retirees due to their longer life expectancy.
Inherited IRAs
There have also been significant changes recently to the RMD requirements for inherited IRAs, also known as Beneficiary IRAs. The specific details of these changes is beyond the scope of this article, but it is important to be aware of these new rules if you have inherited, or will soon inherit an Individual Retirement Account. Details can be found many places, or you can contact a financial advisor at James River Advisors to discuss the details as they apply to your particular situation. Contact Us.
Changes to Tax Laws for 2023
The new tax laws known as Secure Act 2.0 have made some significant changes to RMD requirements for 2023. Most notably, beginning January 1st 2023, individuals must start taking RMDs at age 73, unless they turned 72 prior to December 31, 2022 (in which case they would be subject to the old rules). Roth IRAs are not subject to RMD requirements, but Roth 401(k)s and Roth 403(b)s are subject to RMD requirements. However, Roth 401(k)s and Roth 403(b)s can both be rolled over into a Roth IRA with James River Advisors, which would remove the RMD requirements associated with the account.
Retirement can bring many exciting possibilities but also comes with important decisions like understanding your Required Minimum Distribution (RMD). It is important for retirees planning for retirement now (and those already retired) to understand their options when it comes to taking their required minimum distributions each year so they don’t incur any unnecessary taxes or penalties down the line. Contact James River Advisors today for your free consultation. Contact Us.