Ever wonder how the intriguing world of Required Minimum Distributions (RMDs) and Individual Retirement Accounts (IRAs) came about? Let’s hop into the time machine for a quick journey through financial history.

Back in 1974, the Employee Retirement Income Security Act (ERISA) laid the foundation for IRAs, offering individuals a way to defer savings for retirement while at the same time reducing their tax liability for that current year. Initially, contributions were capped at a modest $1,500, but over the years this number has evolved & increased up to $7,000 for 2024! Bonus if you’re over 50 you’re allowed to participate in the catch-up contribution of an additional $1,000 = $8,000 total for 2024.

Not to leave out the fun part (RMDS) In 1986 – The Tax Reform Act introduced the concept of RMDs, requiring account holders to start taking withdrawals from their IRAs or employer-sponsored retirement plans once they reached the age of 70 1/2.

Fast forward to today, where RMDs continue to play a vital role in retirement planning. If you turned 70 ½ after 2019, you were gifted more leeway to savor the tax-deferred savings until age 72. Sticking with the consistent changes, in 2023 the Secure Act 2.0 increased the RMD age to 73!

In the current financial landscape, it’s important for us, fee-only financial planners, to navigate the intricate details of RMDs for our clients. The IRS mandates specific withdrawal percentages based on life expectancy and failure to comply can result in unnecessary penalties. The future promises additional changes, with discussions of further adjustments to RMD ages and withdrawal calculations. Staying informed of these nuances ensures we guide our clients through the ever-evolving terrain of retirement planning.

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Lighthouse Financial Advisors

3 Harding Rd Suite B
Red Bank, NJ 07701

P: 732.747.6697
F: 800.886.0302
info@lfadvisors.com

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Client Relationship Summary – Form CRS
Firm Brochure – Form ADV 2A

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