New IRA RMD Rules Announced as IRS Offers Relief on 2024 RMDs
Key Points – New IRA RMD Rules Announced as IRS Offers Relief on 2024 RMDs
- Understanding the New IRA Required Minimum Distribution Rules for 2024
- Clarifying the 10-Year Rule for IRA Non-Spouse Beneficiaries
- What RMDs Are Being Excused and What RMDs Are Being Waived for 2024?
- Why It Could Still Make Sense to Take an IRA Distribution Even If You’re Getting Relief on 2024 RMDs
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New IRA RMD Rules Announced as IRS Offers Relief on 2024 RMDs
In case you missed it, Tax Day wasn’t the only noteworthy day for the IRS in April. While some people might dread thinking about the IRS and Tax Day, the IRS shared some exciting news on April 16 for IRA beneficiaries who are subject to the 10-year rule on RMDs. That came in the form of IRS Notice 2024-35,1 which stated that the IRS would excuse RMDs for 2024.
Why Are These New IRA RMD Rules for 2024 So Impactful?
The 10-year rule is still somewhat new, so we want to make sure we’re clear on it so everyone can see why these new IRA RMD rules for 2024 are a big deal. Prior to the SECURE Act, which went into effect in 2020, non-spouse beneficiaries of IRA owners could stretch the RMDs from their inherited IRAs over their lifetime. But that changed in 2020 once they became subject to the 10-year rule.
In addition to that, the IRS announced in 2022 that those non-spouse beneficiaries would be forced to take RMDs each year of Years 1-9 if the IRA owner passed away on or following the date their RMDs were scheduled to start.2 Thanks to the SECURE Act 2.0, which went into effect on January 1, 2023, the required beginning date for RMDs changed from April 1 of the year after the IRA owner turns 72 to April 1 of the year after they turn 73. RMD age is scheduled to move up to 75 on January 1, 2033.
Were you able to follow all that? If not, know that you’re not alone in that. The 10-year rule made it that much more important to consider RMDs before and after retirement.
Extending Relief on RMDs
The IRS received a lot of backlash after creating the 10-year rule. Therefore, they previously provided relief that covered the following items already prior to issuing Notice 2024-35:3
- Excuse annual RMDs in 2021, 2022, and 2023 for IRA non-spouse beneficiaries of account owners who passed away in 2020 following their required beginning date.
- Excuse 2023 annual RMDs for IRA non-spouse beneficiaries of account owners who passed away in 2022 following their required beginning date.
- Waive annual RMDs for IRA non-spouse beneficiaries in 2022 and 2023 if they inherited the IRAs in 2021 following the account owner’s required beginning date.
Another Year of Relief
So, the issuing of Notice 2024-35 is exciting news about IRA RMD Rules for 2024, as the IRS has prolonged the relief for those who are subject to the 10-year rule. To be clear, this notice does the following:
- Waives 2024 annual RMDs for IRA non-spouse beneficiaries of account owners who passed away between 2020-2022 following their required beginning date.
- Excuses 2024 annual RMDs for IRA non-spouse beneficiaries of account owners who passed away in 2023 following their required beginning date.
Summing Up the New IRA RMD Rules for 2024
If you’ve been subject to annual RMDs due to the 10-year rule after inheriting an IRA post-2019, you can breathe a little easier until 2025 since your 2024 RMD is either being excused or waived. That being said, it could make sense for you to still withdraw some funds from your IRA in 2024.
Yes, you read that last sentence right. Even though those 2024 RMDs are being waived or excused (depending on when the account owner passed away), it’s important to think about your current tax rate vs. your future tax rate.
The tax rates from the Tax Cuts and Jobs Act scheduled to sunset after December 31, 2025.4 If the current tax rates do sunset at that time, they would revert to the higher tax rates from 2017 starting in 2026. So, taking more from your tax-deferred IRAs prior to 2026 could result in tax savings. While the relief can be beneficial, delaying when you take distributions could result in paying more taxes toward the end of your 10-year window.
A Few Final Clarifications About These New IRA RMD Rules for 2024
We want to make sure to note that Notice 2024-35 doesn’t impact the following:
- RMDs from inherited IRAs for eligible designated beneficiaries
- RMDs for non-spouse beneficiaries who inherited IRAs prior to 2020
- Lifetime RMDs
Planning for RMDs Before and After Retirement
As we wrap up this article on these new IRA RMD rules for 2024, we’d be remiss if we didn’t share one final tidbit that was included in Notice 2024-35. While the IRS did offer relief for 2024 RMDs, the Notice hinted that the relief might not keep coming once 2025 arrives. So, even if you’re planning to take relief on your 2024 RMDs, it’s crucial to keep planning for them.
As you can probably tell from the complex rules we’ve reviewed, planning for RMDs before and after retirement isn’t simplistic. It’s important to work with a CFP® Professional and a CPA that are collaborating together on your behalf. Planning for your RMDs needs to be a part of your forward-looking tax plan, which is a key part of a comprehensive financial plan.
If you have any questions about what we’ve covered or about how our team of professionals can assist you with planning for RMDs, start a conversation with our team below.
Trying to keep up with all the nuances of the tax code isn’t something that anyone should try to tackle on their own. Our team of professionals is ready to help you plan for RMDs and your various other financial planning needs so that you can have more confidence that you’re doing the right things with your money, freedom from financial stress, and time to do the things you love.
Resources Mentioned in This Article
- Transferring Wealth: IRAs Are a Bad Option
- Rules for Inherited IRA Distributions: What Are the Latest Changes?
- RMD Questions: What Are Required Minimum Distributions?
- What Is the SECURE Act?
- Is the Stretch IRA Dead?
- Understanding the SECURE Act 2.0 with Ed Slott, CPA
- RMD Age for 2023: What’s Your Required Beginning Date?
- New Retirement Rules Passed by Congress
- Considering RMDs Before and After Retirement
- What Is Tax Planning?
- What If We Go Back to Old Tax Rates?
- Tax Rates Sunset in 2026 and Why That Matters
- How to Reduce RMDs with 5 Strategies
- The CFP® Professional and CPA Relationship with Logan DeGraeve, CFP®, AIF® and Corey Hulstein, CPA
- Tax Planning Strategies with Marty James, CPA, PFS
- Components of a Complete Financial Plan with Logan DeGraeve, CFP®, AIF®
- Why You Need a Financial Planning Team with Jason Gordo
- DIY Retirement Planning: What Can Be Overlooked?
Downloads
Other Sources
[2] https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs
[4] https://taxfoundation.org/blog/tcja-expiring-means-for-you/
Investment advisory services offered through Modern Wealth Management, LLC, an SEC Registered Investment Adviser.
The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Adviser. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.