There is an exception to the December 31 deadline for traditional IRA owners who turned 73 in 2024. Those individuals may delay their first RMD until April 1, 2025. However, if they delay the first RMD, they will also need to take a second RMD by December 31, 2025.

RMDs are generally required for most qualified retirement plans. This rule applies to three types of IRAs. Specifically, they apply to Individual Retirement Arrangements, Simplified Employee Pension (SEP) IRAs and Savings Incentive Match PLan for Employees (SIMPLE) IRAs.

RMDs also apply to traditional 401(k), 403(b) and 457(b) plans. An exception to the RMD withdrawal requirement is a Roth IRA, Roth 401(k) or Roth 403(b) – there are no distribution requirements for these plans if the original owner is living.

Most taxpayers take the RMD based upon the Uniform Lifetime Table in IRS Pub. 590-B. This table assumes there is a beneficiary 10 years younger than the IRA owner and calculates a distribution amount based on both ages. If the IRA owner has a spouse more than 10 years younger, a special calculation is applied.

Owners of multiple IRAs must calculate the RMD for each plan. However, the owner can elect to withdraw the total RMD amount from any IRA plan.

Some employees over age 73 who are still working and are not major owners of a business may be able to defer RMDs until after retirement. You should consult your tax advisor to see if you think this exception applies to you.

Many online calculators are available to help determine your RMD. Most large financial companies offer an online determination of the correct amount. RMDs start at approximately 3.8% of your prior year December 31 IRA balance.

The RMDs increase each year after age 73. Your RMD is approximately 4.2% at age 76, 5.0% at age 80, 6.3% at age 85, 8.2% at age 90 and 11.2% at age 95.

Editor’s Note: An excellent way to fulfill an RMD is to give part or all of the IRA payment to a qualified charity. Qualified charitable distributions (QCDs) are available for individuals over age 70½ and may fulfill part or all of your RMD. The QCD is a transfer directly from the IRA custodian to a qualified charity. Up to $105,000 may be transferred in 2024. If you are planning ahead, the 2025 QCD limit will be $108,000. It is important to act quickly if you plan to make a QCD gift this year. The QCD must be completed by December 31, 2024.

• Interest on Tax Refunds — If you received a federal tax refund in 2024, you may also have received additional interest. The IRS will send Form 1099-INT to anyone who received interest with a refund. This interest is taxable income and must be reported.
• Charitable Deductions — With the increase in the standard deduction, the number of taxpayers who itemize declined from approximately 30% to about 10%. If you itemize, you may deduct cash and appreciated property gifts to qualified charitable organizations. The normal cash contribution limit is 60% of adjusted gross income (AGI). The limit for gifts of appreciated stock, land and other property is 30% of AGI. You can combine both cash and property gifts in a single taxable year. If you are over the gift limit, the extra deduction may be used over the next five years. Gifts over $250 will require a receipt from the charity before you file your return. There is more information on charitable deductions in IRS Publication 526, Charitable Contributions.
• Tax refunds in 2025 — Some taxpayers plan to file in January of 2025 and hope to receive a prompt refund. The IRS cautions that some refunds may require a longer period for processing. Delays may be related to IRS efforts to protect against identity theft and refund fraud. The IRS is also required to delay refunds for tax returns that claim an Earned Income Tax Credit (EITC) or an Additional Child Tax Credit. These refunds will likely be issued on or after the middle of February.
• Best Refund Option — The IRS reminds taxpayers that the safest and most convenient way to receive a refund is to use the electronic filing options. Many taxpayers use the IRS Free File or IRS Direct File program. After you file, you may track a refund with the “Where’s My Refund?” Tool on IRS.gov.

Editor's Note: Many individuals with substantial state and local tax deductions, mortgage interest and charitable gifts will itemize deductions. The charitable gifts must be made prior to December 31 of this year. IRA owners over age 70½ and older, may choose to make a qualified charitable distribution (QCD) up to $105,000 in 2024. Plan to contact your IRA custodian as soon as possible to ensure the gift is made before December 31.

For this reason, the eventual distribution options for an IRA or 401(k) are quite important. For many individuals, the IRA or 401(k) may be the largest asset in their estate.

IRAs and 401(k)s are transferred to a designated beneficiary that is selected on an IRA or 401(k) custodian's form. The five common choices for designated beneficiary are the surviving spouse, children, charity, a trust for children or a trust for spouse and children.

1. Spouse as Beneficiary

The most common choice for a married couple is to select the surviving spouse as the designated beneficiary of an IRA or 401(k). When the IRA or 401(k) owner passes away, the surviving spouse usually chooses to roll the decedent’s IRA over into his or her IRA.

Assume that Harry Smith is the IRA owner and he passes away with Helen Smith as his designated beneficiary. Helen is age 68 when Harry passes away and she rolls over the IRA into her plan.

When Helen reaches age 73, she must start taking required minimum distributions. The initial minimum distribution must be taken by April 1 of the next year and is just under 4%. Her distribution will steadily increase as she becomes more senior.

Because Helen rolled over Harry's IRA into her IRA, she qualifies for the lower required minimum distributions under the uniform table. Helen often selects children or charities as designated beneficiaries after she passes away.

If you are in a community property state and plan to leave your IRA to a trust or other beneficiary that is not your spouse, then it is essential to obtain a written consent from your spouse. In many states, attorneys who prepare estate plans will frequently use a waiver if the spouse is not the designated beneficiary of an IRA.

2. Children

For a surviving spouse or single person, an IRA or 401(k) may be transferred to children, nephews, nieces, other heirs or charity. Each child or other heir may take distributions for a period of up to ten years. With the exception of a spouse, a minor child, a child with a disability or chronic illness or an heir who is less than ten years younger than the IRA owner, the full IRA must be distributed within ten years of the death of the IRA owner.

Prior to 2020, a child was able to “stretch” the IRA payout over his or her life expectancy. A 60-year-old child of the IRA owner would have been able to start distributions at age 61 at approximately 4% and stretch those payouts over 26 years. Now, a child or other heir of the IRA owner must usually take all distributions within ten years.

Unfortunately, with many children the ten-year stretch plan will not be successful. CPAs report to the author that approximately one-half of children choose to take the traditional IRA distribution early, even though that means paying the income tax earlier and losing the benefit of the tax-free growth over the maximum distribution period.

3. Charity

For an IRA or 401(k) owner, the qualified plan is a wonderful benefit and a very good asset. However, when the owner passes away, a traditional IRA or 401(k) is often transferred to children with a large "you owe the IRS" tax bill attached (unlike the Roth IRA, which is income tax-free). For the vast majority of qualified plans, the child will pay income tax. Worse yet, the IRA or 401(k) distributions may even push the child into a higher tax bracket.

With income tax on the traditional IRA or 401(k) and no income tax paid on an inherited home, land or stocks, the IRA or 401(k) is a less desirable asset for children. In fact, many children consider this a "bad asset" because of the income tax on most IRA payouts to children.

For this reason, children would prefer to receive a home, land or stock because there is no income tax bill attached. The wise planning decision is to transfer the home, stocks or land (the good assets) to children and save all the IRA income tax by transferring it to charity.

Because charities are tax exempt, there is no payment of income tax or estate tax on a traditional IRA or 401(k). The charity receives the full value tax free. By transferring the IRA or 401(k) to charity, it is possible to turn a bad asset into a good asset.

4. "Give It Twice" Trust

What plan could protect children from spending the IRA amounts and paying maximum income tax? Could a plan combine the tax-saving benefits of a stretch IRA with a term-of-years or life payout to children or other heirs? Could this plan also have the tax-free growth benefit of a stretch IRA?

A wonderful solution is an IRA to testamentary unitrust plan, which includes all of these benefits. A single person or surviving spouse may create an unfunded lifetime unitrust or testamentary unitrust in a will or living trust. The IRA beneficiary designation is to the trustee of that unitrust.

When the IRA owner passes away, the unitrust is funded with the traditional IRA. Because the unitrust is tax-exempt, there is a bypass of the income tax on the traditional IRA and any future growth. The children or other heirs receive new taxable income from the trust investments. The 5% unitrust payouts may last for a term of 20 years or for their lifetimes.

A very good plan for parents who have made lifetime gifts to charity is to combine a benefit to children with a future benefit to charity. This plan is called a "Give It Twice" trust.

For example, Mary Smith had an $800,000 estate. She lived in a home worth $200,000, had a CD for $200,000 and $400,000 in her traditional IRA. Her IRA was substantial because when her husband Bill passed away, she rolled over his IRA into her IRA. The combined IRA is now half of her estate.

Mary has two children and decides to transfer the home and CDs to the children in equal shares when she passes away. They each receive $200,000 in value from the home and CDs with no income or estate tax.

After Mary passes away, the $400,000 IRA is transferred into a charitable remainder trust. It receives the IRA proceeds and invests the full $400,000. The trust pays 5%, which is divided between the two children for a term of 20 years. At the end of 20 years, the trust principal plus growth is given to charity.

Mary was pleased with her plan because she had achieved several goals. First, she provided both principal and income to her children. This is a very good plan because some children will benefit from time to improve their money management skills. Second, she saved income tax on the traditional IRA. Because a unitrust is tax exempt, it receives the entire IRA tax free. The trust earns income for the children for a term of 20 years and is then transferred tax free to charity.

Because the trust benefits the children with more than $400,000 in income and then is given to charity, it truly may be called a "Give It Twice" trust.

5. Trust for Spouse and Children

For individuals with larger estates, it may make good sense to create a trust for surviving spouse and then a term of years for children. After the first person passes away, the IRA is transferred into the trust for the surviving spouse. The trust will distribute income for his or her lifetime and then to children for a term of 20 years. Following the life of the spouse plus 20 years for the children, the trust remainder is distributed to charity.

This trust has several benefits. First, it may save very large income taxes because the trust is tax exempt. Second, the trust can be a "net plus makeup" plan that allows the spouse to choose to save taxes by taking reduced income during life. This will allow the trust principal to continue to grow and build up the trust so there is greater income to children.

This plan is an excellent way to benefit the surviving spouse, children and charity.

With the proliferation of smartphones, tablets, notebooks and computers along with online education for young students during COVID-19, many youths are now at risk. Children use computers and smartphones at home for school, online shopping and social media. Because many young individuals do not understand cybersecurity risks, they may share personal information that will unknowingly be used by scammers and fraudsters.

The Security Summit highlights five tips for online security. Parents should share these concepts with youth and teens and urge them to protect personal data.

1. Recognize and Avoid Scams — Each year, there are billions of phishing emails, phone calls and texts from thieves. Many of the identity thieves claim to be from the IRS, police, DMV or other organizations. Individuals should not click on links or download attachments in emails if they do not know the identity of the sender. The downloaded attachment will install malware on your computer and may give the thief access to your personal data.
2. Security is Important — Parents should caution children and teens to be careful not to reveal their personal information. They should not disclose birth dates, home addresses, age or financial information. Young individuals should be cautioned to protect Social Security numbers and bank or savings account information.
3. Public Wi-Fi Networks — Many coffee shops, restaurants or malls offer a free Wi-Fi connection. However, there is no certainty that this connection is secure. Many cybercriminals monitor the information on these public Wi-Fi networks. Youth and teens should be cautioned not to send emails and personal information over public Wi-Fi networks. They also may consider using a virtual public network (VPN) in order to connect with public Wi-Fi.
4. Security Software with Firewall and Anti-Virus Protection — All computers should have security software with automatic updates. Most antivirus software will be updated on a daily basis. If a file is sensitive, it can be encrypted or protected through passwords. The best solution is to avoid placing sensitive data in the public arena. Social media sites and email are potentially accessible to large numbers of bad actors.
5. Passwords — Youth and teens should be encouraged to use strong passwords. A strong password includes a variation of upper and lowercase letters, numbers and special characters. The password should not include information that is easily connected with the young individual, such as his or her name, address, or city.

Editor's Note: Students routinely use online platforms as part of their education. As a result, there is widespread use of electronic devices by individuals in grade school, middle school and high school. Parents should educate students about the importance of cybersecurity.