If you are in or nearing retirement, you may have heard someone mention needing to take an RMD. Required minimum distributions (RMDs) are the minimum amounts you must withdraw from your retirement accounts each year, once you reach a certain age.
2022 and 2023 are transition years for changing that age requirement from 72 to 73.
If you turned 72 in 2022, you were required to take your first RMD by April 1, 2023, and your second RMD must be taken by December 31, 2023.
If you turned 72 in 2023, your first RMD must be taken by April 1, 2025 and your second RMD by December 31, 2025.
Generally, clients who turned 72 in 2022 would have taken their first RMD in 2022 and 2023’s RMD will be your second. Clients who turned 72 in 2023 will generally take their first RMD sometime in 2024 (the year you turn 73).
The RMD is calculated for each account by looking at the prior 12/31 balance and a life expectancy factor that the IRS publishes each year. An IRA owner must calculate the RMD separately for each IRA they own, but can withdraw the total amount from one or more of the IRAs. Similarly, a 403(b) contract owner must calculate the RMD separately for each 403(b) contract they own, but can take the total amount from one or more of the 403(b) contracts. However, RMDs required from other types of retirement plans, such as 401(k) and 457(b) plans, must be taken separately from each of those plan accounts.
Although the IRA custodian or retirement plan administrator may calculate the RMD, the account owner is ultimately responsible for taking the correct RMD amount each year.
One tool we sometimes suggest clients use in conjunction with their RMDs is that of a Qualified Charitable Distribution (QCD). Normally, distributions from these IRAs are taxable when they happen. With a QCD, these distributions become tax-free as long as they are paid directly from the IRA to an eligible charitable organization.
A QCD counts toward satisfying your RMD, and can be both a way to satisfy your requirement of withdrawing from your IRA and a way to continue to support charitable organizations you care about.
If you have any questions regarding RMDs or QCDs, please reach out to our office or to your investment advisor.