Understanding RMDs: A Simple Explanation

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Doug Goldstein February 15, 2024

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Are you approaching the age of 73 or have inherited an IRA account? If so, understanding Required Minimum Distributions (RMDs) from IRAs is crucial. In a recent episode of The Goldstein On Gelt Show, Douglas Goldstein discussed RMDs in detail and answered a listener letter regarding RMDs for inherited IRAs. Here’s a summary of the key points to help you navigate RMDs and avoid potential penalties.

What Are RMDs?

RMDs are the IRS’s way of ensuring that the funds in your IRA, which have grown tax-deferred over the years, are eventually taxed. Once you reach the age of 73, the IRS mandates that you withdraw a certain amount from your traditional IRA each year. This amount is determined by a formula based on your age and the total value of your IRA at the end of the preceding year.

Inherited IRAs and RMDs

If you have inherited an IRA from a someone, you might also be subject to RMDs. In the case of an inherited IRA, the IRS requires beneficiaries to withdraw the entire amount within a specific timeframe, usually within ten years of the original account holder’s death.

Penalties for Failing to Take RMDs

It’s essential to stay on top of your RMDs to avoid potential penalties. For instance, failing to take your RMD can result in a 50% tax penalty on the amount you were supposed to withdraw. However, recent legislation has reduced this penalty to 25% or even 10% under specific conditions.

Donating RMDs to Charity

One strategy to potentially reduce the tax impact of RMDs is to donate the withdrawn funds directly to a qualifying charity. This can potentially help reduce your tax burden while supporting a cause you believe in.

What should you do?

Seek professional advice to ensure your portfolio complies with IRS regulations, and to make sure you are informed about any changes in relevant legislation. 

If you’re living outside the United States and need personalized financial guidance, reach out to Profile Investments Services, Ltd. Profile specializes in assisting individuals outside the United States with U.S. investment accounts.

Subscribe to the Profile and Goldstein On Gelt email lists for more valuable financial tips and updates.

Watch Understanding Required Minimum Distributions RMDs from IRAs on YouTube.

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