The Internal Revenue Service (IRS) has an important update for retirees: If you're turning 73 years old in 2024, get ready to start receiving money from your retirement savings like the Individual Retirement Accounts (IRAs) and 401(k) plans by April 1, 2025.
Most people who have saved money for retirement through these accounts have to start taking out a minimum amount every year once they reach a certain age, which is now set at 73 for those born after December 31, 1950. This rule ensures you're using the money you saved for retirement during your lifetime.
The first time you withdraw, you have until April 1 of the following year. But for every year after that, you must take this minimum amount by December 31. So, if you take your first withdrawal in 2025 for the year 2024, you should also remember to make your next withdrawal by the end of 2025.
The amount you take out for the first time will count as income for 2025 and will be included in your tax return for that year, alongside any other amounts you withdraw during 2025.
What Plans Are Affected?
The rules for these required minimum distributions (RMDs) apply to various retirement accounts such as the traditional IRA, Simplified Employee Pension (SEP), and the Savings Incentive Match Plan for Employees (SIMPLE) for living owners, as well as 401(k), 403(b), and 457(b) plans. However, Roth IRAs do not require these distributions while the account holder is alive.
Your plan or IRA trustee should let you know how much you need to take out, or offer to calculate it for you. They use Form 5498 to report this amount.
Can Anyone Delay These Withdrawals?
Yes, but it's limited. Most people have to start taking money out by April 1 after they turn 73, but those still working could delay this if their workplace retirement plan allows it.
This delay doesn't apply to everyone, especially not to 5% business owners or certain plan participants. Additional information on tax implications for delays can be found in IRS Publication 575.
Employees of public schools or certain tax-exempt organizations with specific retirement plan accumulations should ask their employer or plan provider about managing their savings.
Remember, managing these distributions correctly is crucial to avoid unnecessary taxes and ensure a smooth retirement. Always seek professional advice if you're unsure about the rules.
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