Employers may allow loans from 401(k) plans, but defaults are treated as taxable distributions with penalties. Hardship withdrawals are permitted for “immediate and heavy financial need” (e.g., medical or disaster-related expenses).
Penalties for Missed RMDs
Standard penalty: 25% of the RMD amount not taken
Reduced penalty: 10% if corrected promptly
Inherited IRAs: Post-SECURE Act Rules
For deaths before 2020, beneficiaries may “stretch” distributions over their lifetime
For deaths in 2020 or later, most non-spouse beneficiaries must fully distribute the account within 10 years
Exceptions apply for certain eligible beneficiaries, such as:
Surviving spouses
Minor children (until age 21)
Disabled or chronically ill individuals
From 2025 onward, if the original owner had begun RMDs, heirs will also be required to take annual distributions during the 10-year period.
Charitable Giving from IRAs
Qualified Charitable Distributions (QCDs)
Available to IRA owners age 70½ or older
Allows direct gifts from IRAs to qualified charities
Can satisfy RMD requirements
Limits
2024: Up to $105,000
2025: Up to $108,000
Charitable Gift Annuities via IRAs
IRA owners 70½ or older may use assets to fund a charitable gift annuity
Provides at least a 5% annual payout (taxable), with remainder going to charity upon death
Only the IRA owner and/or spouse may receive the income
Annual Limits
2024: Up to $53,000
2025: Up to $54,000
QLACs: Qualified Longevity Annuity Contracts
IRA and 401(k) owners may use up to $210,000 (2025 limit) to purchase a QLAC, providing guaranteed income beginning at a later age (e.g., 80 or 85). QLACs can reduce RMDs and provide longevity protection.
Conclusion
Retirement accounts offer powerful tax benefits but come with strict regulations. Properly managing contributions, withdrawals, and conversions can greatly enhance long-term financial outcomes. Missteps—such as missed RMDs or improper conversions—can lead to unnecessary taxes and penalties.
For professional guidance tailored to your unique financial situation, contact Diamond Tax & Financial. We’re here to help you navigate your retirement strategy with clarity and confidence.