1. New IRS 10-Year Rule for Inherited IRAs
If you inherit an IRA or retirement account, there are new rules to follow. Starting in 2025, most beneficiaries (except those who are permanently disabled) will need to withdraw money from inherited IRAs within 10 years of the original account holder’s death. The IRS has created this “10-year rule” to ensure the funds are fully distributed by the end of the 10th year. This is a change from previous rules where heirs could wait until the last year to take out money. The rule affects taxes, as withdrawals will be taxed as regular income, and if you delay taking the required amounts, you may face a 25% penalty. However, if you correct the mistake within two years, the penalty might be reduced to 10%.2. Bigger Catch-Up Contributions for People Aged 60-63
The IRS recognizes that saving for retirement can be hard, especially if you start late. To help people catch up, they allow additional contributions to 401(k) plans and IRAs for people over 50. Starting from 2025, those aged 60 to 63 can contribute more money—up to $10,000 or 150% of the usual contribution limit (whichever is higher). This change is part of an effort to support older workers who might not have saved enough for retirement. Additionally, the IRS will link contribution limits to inflation, allowing even larger contributions in the future.3. New IRA Contribution Limits for 2025 (Possibly)
The IRS updates contribution limits annually. For 2024, you can contribute up to $7,000 to a standard or Roth IRA, with an extra $1,000 catch-up contribution if you are 50 or older. It’s expected that the contribution limits for 2025 will be announced soon, with some rumors suggesting the $7,000 cap could increase. However, until the IRS confirms, it’s best to stick to the current limits for planning purposes. Understanding the changes to IRS retirement rules can help you plan better for your future. Whether it’s managing withdrawals from inherited IRAs, making bigger contributions as you near retirement, or staying up-to-date with contribution limits, knowing the facts will keep you prepared. Always stay informed to avoid unexpected tax bills and ensure that you are taking full advantage of available tax breaks.1. What is the 10-year rule for inherited IRAs?
The 10-year rule requires most beneficiaries to take money out of an inherited IRA within 10 years of the original account holder’s death. Taxes will apply on these withdrawals, and failure to take out the money on time can result in a penalty.
2. Who can take advantage of catch-up contributions?
Catch-up contributions are available for people aged 50 or older. Starting in 2025, those aged 60-63 will be able to contribute even more, helping those who may have started saving later in life.
3. How much can I contribute to an IRA in 2024?
In 2024, you can contribute up to $7,000 to a standard or Roth IRA if you’re under 50. If you’re 50 or older, you can contribute an additional $1,000 as a catch-up contribution.
4. What happens if I don’t take my RMD (Required Minimum Distribution) on time?
If you don’t take your RMD on time, the IRS will impose a 25% penalty on the amount you should have withdrawn. However, if you fix the mistake within two years, the penalty may be reduced to 10%.
5. Can the IRS change the contribution limits for 2025?
Yes, the IRS changes contribution limits every year, and there are expectations that the 2025 limits might increase, especially for people aged 60-63, due to inflation adjustments.
