How it affects your retirement income and charitable giving

As 2024 progresses, it’s important to be aware of several updates to the required minimum distribution (RMD) rules, especially if you’re nearing retirement. Whether you’re navigating the new RMD age limit or looking at your charitable giving strategies, these changes can affect your retirement income, taxes, and even Medicare costs.

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RMDs now begin at age 73

One of the biggest changes in the SECURE 2.0 Act was raising the starting age for RMDs. Previously, retirees had to start taking distributions from their traditional IRAs and 401(k) accounts at age 72. Beginning in 2024, the RMD age increased to 73, giving account holders another year to keep their money growing tax-deferred.

If you were born between 1951 and 1959, you must start your RMD at age 73. However, those born in 1960 or later can defer RMDs until age 75 because the SECURE 2.0 Act pushed the RMD age to 75 in 2033.

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Higher Medicare premiums?

A hidden cost of RMDs is the potential increase in your Medicare premiums. When you start taking RMDs, your taxable income increases, which can push you into a higher income bracket. Your Medicare Part B and D premiums may increase if your income exceeds certain thresholds.

Beware of penalties

Missing an RMD can result in significant penalties. Previously, the penalty for not taking the full RMD was 50% of the amount not withdrawn. However, thanks to the SECURE 2.0 Act, the penalty has been reduced to 25%. Correcting the mistake within two years will reduce the penalty to 10%. Even this is a costly mistake, so it’s wise to stay on top of RMD deadlines.

You can set up automatic withdrawals to avoid losing an RMD, or mark your calendar ahead of time to make sure you don’t lose it.

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Charitable donation opportunities

Charitable giving might be a smart option if you want to minimize taxes while meeting your RMD obligations. In 2024, you can make a qualified charitable distribution (QCD) of up to $105,000 from your IRA if you’re over 70 ½. If donated to a qualified charity, this amount counts toward your RMD and is not taxed as income.

In addition, retirees can donate up to $53,000 to eligible charities through charitable remainder trusts or gift annuities. This can be a great way to meet RMD requirements while supporting a cause you care about.

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Roth 401(k) RMD Relief

Another notable change for 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 taking distributions. Now Roth 401(k) and Roth IRA holders can skip the RMD and let their investments grow tax-free during retirement.

Changes to the 2024 RMD rules provide new opportunities to manage retirement income, minimize taxes and plan charitable giving. Consider speaking with a trusted financial advisor to navigate these updates and maximize your retirement strategy.

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This article 2024 RMD Rule Updates: How They Affect Your Retirement Income and Charitable Giving originally appeared on Benzinga.com

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