Beneficiaries must understand IRA distribution rules now

If you have a traditional IRA, there are some important rules you should know. These rules can affect what happens to your IRA after you pass away and how much money you must withdraw each year. First, let’s talk about Required Minimum Distributions (RMDs). Once you turn 73, you must start taking money out of your IRA every year. If you don't, you could face a hefty tax penalty of 25% on the missed amount. You can reduce this penalty to 10% if you take the money out and fix the issue within two years. To avoid these penalties, it's a good idea to take your RMDs early and set reminders, so you don’t forget. Even if you don’t need the money right away, you still need to withdraw your RMD by the due date. You can use this money to contribute to a Roth IRA, donate to charity, or invest in other ways. Next, let's look at rules for beneficiaries. Previously, heirs could withdraw money from inherited IRAs throughout their lifetimes. But now, most accounts inherited after 2020 must be emptied within ten years following the original owner's death. If the original owner was already taking RMDs before they died, the beneficiary must also take RMDs. The IRS clarified these rules recently. If a beneficiary is not the original IRA owner's spouse, they must take annual RMDs and could face penalties for missing them. It's crucial for anyone inheriting an IRA to understand these rules to avoid financial surprises. In summary, both RMDs and beneficiary rules are essential to consider for anyone with a traditional IRA. Keeping informed can help you and your loved ones manage your finances wisely in the future.