Year-End Financial To-Do: If You Have an IRA, Take Your RMDs; Consider QCDs

Nov 28, 2023

By Theresa Cagle Fry, Senior Vice President and Manager IRAs, Retirement & Education Planning
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This past year, there were some major changes made regarding required minimum distributions (RMDs) and qualified charitable distributions (QCDs) with the enactment of tax law changes that are commonly referred to as SECURE 2.0. If you have an IRA or workplace retirement plan, like a 401(k), these changes may require your attention before the end of the year if they apply to you.

RMDs Generally Start at Age 73, But Exceptions Apply
For traditional IRAs, SEPs and SIMPLE IRAs, RMD age increased from 72 to 73 this year. Therefore, anyone born before 1951 is required to take a 2023 RMD. If you were born in 1950 and this is your first distribution year, your RMD can be taken any time in 2023, but no later than April 1, 2024. Otherwise, your 2023 RMD deadline is December 31, 2023.

The same general rules apply to your workplace retirement accounts, such as 401(k), 403(b) or 457(b) plans, with a few exceptions. If you are still working for the employer that provides the retirement plan, RMDs don’t usually have to begin at age 73. They will begin once you separate from service or retire if you are age 73 or older. However, if you are 73 or older, still employed and own 5% or more of the business, or if you are no longer working for the employer offering the retirement plan, you’ll need to make sure you take your RMD for 2023.

For inherited IRAs, the rules are a bit trickier. If you inherited an IRA or retirement plan from someone who died in 2019 or earlier, you are generally required to take an annual RMD from the inherited retirement account. However, if the original retirement account owner died in 2020 or later, annual RMDs may not apply because of the 10-year rule.

The 10-year rule requires a beneficiary to completely distribute the inherited retirement account by the end of the 10th year following the account owner’s death. It impacts most non-spouse beneficiaries. According to proposed regulations issued last year, certain non-spouse beneficiaries must take annual RMDs in addition to depleting the account by the end of the 10th year, while others are not required to take any distributions until year 10. Because these Treasury regulations have not been finalized, it is important for you to consult with your tax professional for guidance on what action you should take this year.

The 10-year rule does not apply to a surviving spouse, or to non-spouse beneficiaries who are disabled, chronically ill, less than 10 years younger than the account owner or are minor children of the account owner. For these “eligible” designated beneficiaries, annual RMDs must begin in the year following the year of death.

Qualified Charitable Distributions Are Available at Age 70½ with New Opportunities
RMDs are typically included in your taxable income. However, if your IRA distribution meets the requirements to be a QCD, then the distribution is tax free. A QCD is a direct gift out of your IRA to a qualified charity in amounts up to $100,000 a year. Check with your tax advisor or the charity before acting to make sure it qualifies.

QCDs do not increase your taxable income and therefore will not increase your adjusted gross income and can be a tax-efficient strategy even if you do not itemize. However, a QCD must be completed by the end of the year to impact your 2023 tax return.

QCDs can only be made from traditional IRAs—not from 401(k)s or other employer-sponsored retirement plans, including SEP and SIMPLE IRAs. And you must be at least age 70½ (six months past your 70th birthday) at the time you make the gift, whether you are the IRA owner or the beneficiary of an inherited IRA. It’s important to note that this is not the same age as your RMD start age, which has increased to age 73. Keep in mind, too, your QCD can be up to $100,000, even if your RMD is less than that amount.

With changes enacted in SECURE 2.0, a QCD now also includes the ability to make a one-time direct gift from the IRA to a “split-interest entity” in an amount up to $50,000. This includes gifts to a charitable gift annuity, charitable remainer unitrust or charitable remainder annuity trust. Talk with your legal or tax professional about the requirements if this is of interest to you. In addition, both QCD amounts—the $100,000 and $50,000 limits—are now subject to cost-of-living adjustments. In 2024, they increase to $105,000 and $53,000.

Make sure you talk to your financial advisor soon if you would like more information about RMDs, QCDs or any of our year-end planning strategies.


IMPORTANT DISCLOSURES: The information provided is based on internal and external sources that are considered reliable; however, the accuracy of this information is not guaranteed. This piece is intended to provide accurate information regarding the subject matter discussed. It is made available with the understanding that Benjamin F. Edwards is not engaged in rendering legal, accounting or tax preparation services. Specific questions on taxes or legal matters as they relate to your individual situation should be directed to your tax or legal professional.