IRS Highlights Year-End Deadline for Required Minimum Distributions Under SECURE 2.0 Act

WASHINGTON, ​December 10, 2024 – The Internal Tax Service (IRS) sent an important reminder ​to persons aged 73 ​and over on the year-end schedule to take the necessary minimum distributions of individual pension plans (IARs) and other ​pension plans. This announcement also highlights updates to the ​SECURE 2.0 Act, which has made significant changes to the SMD standards.

The DDM is an annual withdrawal for many pension account holders to avoid significant tax penalties. According to the IRS, non-compliance with these ​requirements may result in a 25% ​tax on the amount not withdrawn, although ​this rate may be reduced to 10% if corrected within two years. The IRS ​stresses the importance of understanding the updated provisions to ensure compliance and minimize fiscal capacity.

Major changes made by SECURE 2.0

SECURE 2.0 ​The Act ​applied ​a number of significant adjustments to the MDD. One of the main updates is ​to raise the age at ​which ​registrants should start to take RDG from 72 to ​73 years. This extension gives ​pensioners greater flexibility to manage their retirement savings. In addition, the Act eliminates RDG ​requirements for Roth accounts identified in plans 401 (k) and 403 (b) while the account owner is alive, beginning in 2024.

These changes are ​consistent ​with the broader objective of improving retirement savings options ​and allowing account holders to better control their financial strategies. However, Roth ​IRA owners remain exempt from the life RDG ​requirements, and ​beneficiaries must comply with specific rules after the account owner dies.

Types of accounts and applicable standards

RDG rules ​vary by type of retirement account:

• Traditional IRAs: Account holders must take annual withdrawals starting at age 73, regardless of employment ​status.
• Employer-Sponsored Plans: Participants in 401(k), 403(b), and ​similar plans are generally required to begin RMDs ​after retirement. ​However, ​individuals owning more than 5% of the sponsoring business must ​adhere to the standard RMD timeline.
• Roth IRAs: Unlike traditional IRAs, Roth IRAs ​do not require lifetime RMDs for ​account holders, but beneficiaries ​must comply with distribution requirements upon the owner’s ​death.

The IRS provided a comprehensive comparative table ​to help taxpayers understand these distinctions and effectively meet their obligations.

Calculation and intake of RMD

To ​ensure ​compliance, IRA administrators or plan administrators are required to calculate or report ​RDG amounts to account holders. While account owners are responsible for meeting the annual RDG requirements, they may withdraw the total amount of one or more accounts of their choice, provided that the cumulative requirements are met.

The ​IRS provides detailed workshops ​and resources to help account holders calculate their RDGs. These instruments take ​into account factors such as balances, life ​expectancy and ​payment periods. Taxpayers who do not take the total RDG amount within the prescribed time ​limit must file Form 5329, “Additional Taxes on Eligible Plans (Final ITAs) and Other Accounts with Tax Interest”, with their federal ​tax return.

Penalties for non-compliance

Sanctions for ​non-removal of weapons of ​mass destruction can ​be substantial. The standard fee is 25% of the amount not withdrawn, but ​recent provisions allow this rate to be reduced to 10% if the error is corrected within two years. This adjustment highlights the importance of rapid and ​accurate calculation ​of weapons of mass destruction to avoid unnecessary tax ​burdens.

Contributors experiencing difficulties in meeting their BMD requirements are encouraged to seek ​advice from financial advisors or consult ​the CRS resources. The Agency’s retirement ​plan and the RMD IRA ​FAQ website provide ​a wealth of information to help account holders understand their obligations.

Special rules for ​inherited accounts

Recipients of the inherited IRA, pension plan accounts or Roth IRA must ​comply with specific SBD ​rules, ​which may vary according ​to several factors:

• Whether the account owner passed away before or after the required RMD start date.
• The beneficiary’s relationship to the account owner, ​including whether they are a spouse, minor child, or another type of beneficiary.
• The year of the ​account ​owner’s death, as the SECURE Act has introduced new distribution rules for beneficiaries after 2019.

For more assistance, recipients can refer to CRS Publication 559, “Survivors, Executors and Administrators”, which provides guidance on completing federal ​property tax ​returns.

The IRS advises recipients and account owners to consult professional advisors ​for personalized advice tailored to their financial ​situation. Tools such as instructions, worksheets and forms are easily accessible at ​IRS.gov to simplify compliance with these complex requirements.

As the 31 December deadline approaches, retirees and ​beneficiaries must take immediate steps to meet their weapons of mass destruction obligations and ​avoid sanctions. ​Updates to SECURE 2.0 represent a fundamental step ​in modernizing retirement savings regulations, but taxpayers must remain vigilant to understand and implement ​these changes effectively.