Individuals holding tax-deferred retirement accounts or IRAs must take Required Minimum Distributions after they reach a certain age. Legislators prefer individuals to use traditional IRAs and tax-deferred retirement accounts like estate planning techniques as a means of tax-free inheritance to their heirs. The lawmakers want your heirs to benefit from something other than your retirement funds. The main purpose of tax-deferred retirement is to provide retirement funds during your lifetime so that you can spend it while you are alive.

The tax codes prescribe withdrawal of a minimum amount from your retirement account annually. This income is taxable. The RMD amount you can withdraw annually depends on your age and balance in the retirement account as on December 31 of the previous year. As you age, the RMD amount you withdraw increases.

You need RMD for traditional IRAs, SEP-IRAs AND simple IRAs, solo 401(k) plans, and all employer-sponsored tax-deferred retirement like profit sharing plans, 401(k), 403(b), and 457(b) plans.

Age qualification to withdraw RMD
For those born in 1950 or before, the mandatory RMD age is 72 (705 for those who turned 70.5 before 2020. For those born between 1951 and 1959, the mandatory RMD age is 73, and for those born between 1960 and later, it is 75.

Is it time to take my taxable RMD yet?
You can avail of your first RMD before April 1 of the year after reaching your RMD age. The annual RMD can be withdrawn every year upon reaching your RMD age. You can withdraw it before December 31. Remember that withdrawing two RMDs in a single year could become a tax burden for you, increasing Medicare premiums. If you are in a hotspot, you can take the first RMD as soon as you reach your RMD age.

The Secure 2.0 Act has increased the age for RMD from 72 to 75 for the next 10 years. A new law reduces the penalty for not availing RMD or not withdrawing the full amount from 50 per cent to 25 per cent with a correction window of 10 per cent further reduction. From 2024, RMDs will not be required for Roth 401(k)s, Roth 403(b)s, and government Roth 457 (b)s given by employers. Moreover, in 2024m the surviving spouse beneficiaries of the retirement accounts will be given the option to elect treatment for RMD outcomes.