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TAX TIPS FOR INDIVIDUALS

The ABCs of RMDs

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When is your Required Beginning Date (RBD) to take the first RMD?  For traditional IRAs and most retirement plans, the RBD is April 1 of the year after reaching age 73, for those born from 1951 to 1959. Anyone who turned 73 in 2025 must take his first Required Minimum Distribution (RMD) by April 1, 2026.

For those born in 1960 or later, the RBD is April 1 of the year after reaching age 75.   

Who must take an RMD for 2025? For 2025, anyone who owns a traditional IRA, 401(k), 403 (b), or other qualified retirement account must take RMDs if he has reached the applicable RMD age. There is an exception if he is still working and the employer plan allows- see below.

IRAs vs Employer Plans

Traditional IRAs-An account owner must take his RMD by April 1 of the year following the year he reaches his RMD age, regardless of whether he is still working.

Employer plans (401(k) and 403(b))-If the plan allows, and you are still working and not a 5% owner, you can delay RMDs until April 1 of the year after you retire, if that is later than the year you reach RMD status.

Beneficiary of an IRA account? (Rules below apply to IRA owners who passed away after Jan. 1, 2020.)

An individual non-spouse beneficiary who is not an eligible beneficiary must distribute the entire account balance by the 10th calendar year after the account owner’s death.

If the IRA owner reached his required beginning date, the beneficiary must take annual RMDs based generally on his own life expectancy (using the IRS Single Life Expectancy Tables). These RMDs must begin by December 31 of the year after the owner’s death. Although the beneficiary must take annual RMDs, he will need to fully distribute the account within ten years from the owner’s date of death.

If the IRA owner passed away before his RBD, the RMDs are not required. However, the entire account balance must be distributed within ten years from the owner’s date of death.

Who is an eligible designated beneficiary? An eligible designated beneficiary (EDB) is: a surviving spouse, the account owner’s minor child, a disabled or chronically ill individual, or an individual who is not more than ten years younger than the decedent.

Eligible designated beneficiaries do not have to fully distribute the account within ten years.

If the account owner passed away before starting RMDs, EDBs can use their own life expectancy for RMDs.

If the account owner passed away after starting RMDs, the EDBs will take RMDs over the longer of the deceased owner’s life expectancy (had he lived) or his own life expectancy.

Special considerations for certain eligible designated beneficiaries. Surviving spouses may treat inherited IRAs as their own. Minor children follow the EDB rules until reaching the age of majority, at which point the ten-year rule applies.

If an estate is the beneficiary of an IRA, and the account owner reached his RBD, the estate must make distributions based on the remaining life expectancy of the IRA owner (using the IRS Single Life Expectancy Tables). If the IRA owner passed away before his RBD, the assets must be completely distributed within five years of the owner’s passing, but no annual RMD is required.

IRA owner passed away in 2025– If the IRA owner passed away in 2025 prior to taking this year’s RMD, the beneficiary, whether an individual or an estate must distribute the RMD by the end of 2025.

Want to save income taxes on the RMD? – Use a Qualified Charitable Distribution (QCD) in 2025 For IRA owners with charitable intentions, there is a substantial tax benefit by making a QCD. If the owner contributes all or part of his RMD to charity, the portion contributed to charity will not be taxed. QCDs can be made as early as age 70.5, even though minimum distributions are not required until age 73. A QCD may only be made by an original account owner, not by a beneficiary.

What happens if I don’t take the RMD in 2025? If an account owner fails to withdraw an RMD, the amount not withdrawn is taxed at 25%.

Confused? Everyone’s situation is different. Please consult with a tax advisor at Urbach & Avraham, CPAs, to analyze the impact on your personal situation.

One Big Beautiful Bill Act – Tax Provisions for Individuals

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There are indeed some beautiful provisions for individuals in the new tax act.

“Qualified Tips” are Deductible from Income Effective in 2025, taxpayers may deduct tips. Maximum deduction is $25,000. Tips must be received in occupations which appear on the IRS List of Occupations which Receive Tips. The tips must be reported on Form W-2 or 1099. Deduction phased out for taxpayers with Modified Adjusted Gross Income (MAGI) over $150,000.

New Deduction for Overtime Pay Employees may deduct the overtime pay that exceeds their regular rate of pay (the “half” portion of “time and a half”). Overtime must be separately reported on Form W-2 or 1099. Maximum annual deduction is $12,500 ($25,000 for joint filers). Deduction available for itemizing and non-itemizing taxpayers. Effective for 2025. Deduction is phased out for taxpayers with Modified Adjusted Gross Income (MAGI) over $150,000.

Deduction for Seniors Individuals 65 or older may claim an additional $6,000 deduction. Married couples can receive a $12,000 deduction. The deduction is available for itemizing and non-itemizing taxpayers, effective in 2025. Deduction phases out for taxpayers with MAGI between $75,000 -$175,000 ($150,000-$250,000 for joint filers).

Child Tax Credit For 2025, the Child Tax Credit increased from $2,000 per child to $2,200.

Charitable Deduction for Non-Itemizers Charitable deduction for cash gifts up to $1,000 for single filers and $2,000 for joint filers available to non-itemizers. Effective starting 2026.

Interest Deduction for Car Loans Interest paid on a loan for a “qualified” vehicle may be deductible. A qualified vehicle is a new vehicle whose final assembly was in the US. Effective for 2025 for loans originating after Dec. 31, 2024. Maximum deduction is $10,000 and is available for itemizers and non-itemizers. Deduction phases out for taxpayers with AGI over $100,000 ($200,000 for joint filers)

SALT Deduction Increased For 2025, the SALT deduction cap is $40,000. For years 2026 -2029, cap increases 1% a year. Cap phases down if Modified Adjusted Gross Income exceeds $500,000.

529 Plan Expansion The use of 529 plans was expanded effective 2025 and includes curriculum materials, books, test fees, tutoring and educational services for students with disabilities. The K-12 education distribution limit increases from $10,000 to $20,000 per child, starting with distributions made after Jan. 1, 2026.

Please consult with a tax professional at Urbach & Avraham, CPAs to help you analyze the impact of these new provisions on your personal situation.

Year-End Tax Options

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‘Tis the season to review your investments and make some tax beneficial year-end moves. 

Capitalize on Winners 

Your investments are a good starting point for implementing tax-saving strategies. You can benefit from favorable tax rates on long-term capital gains by selling and taking profits on appreciated securities you’ve held longer than one year. Long-term gains are currently taxed at a maximum rate of 15% for most taxpayers and 20% for taxpayers with taxable income of over $492,300 ($553,850 for joint filers) in 2023.

Cut Your Tax Bite With Losers

Investments that have lost value and have consistently underperformed may be perfect sell candidates, particularly if you’re not confident of a turnaround. By selling your losers, you can use your losses to balance out gains on appreciated securities you’ve sold. Capital losses are fully deductible to offset capital gains from any source and up to $3,000 of ordinary income each year ($1,500 if married filing separately). Any losses that you can’t deduct for 2023 can be carried over for deduction in future years, subject to the same limits.

Don’t make taxes your only reason for selling a security. Many factors enter the decision to sell securities, including how the sale of a specific investment would affect your overall portfolio.

Donating Appreciated Securities

Many public charities accept contributions of publicly traded stock or other securities. A donation of highly appreciated securities held more than one year provides a potential tax deduction for the securities’ fair market value while also avoiding the capital gains tax that would be due if the securities were sold.

Need an RMD in 2023?

Your first RMD (required minimum distribution) must be taken by April 1 of the year following the year in which you turn 72 for those who reached age 72 by Dec. 31, 2022. The first RMD for those turning 72 after Dec. 31, 2022 must be taken by April 1 of the year following the year you turn 73. After that, your RMDs must be taken by Dec. 31 of each year.

Want to save Taxes on the RMD? Use a Qualified Charitable Distribution

A qualified charitable distribution (QCD) allows you to donate to qualified charities directly from your individual retirement account (IRA). While there is no tax deduction allowed for the donated assets, they don’t count as income either. What’s more, a QCD can help satisfy your annual required minimum distribution (RMD). To make a QCD you must be at least 70½ years of age. Gifts must be made directly from your traditional or Roth IRA to a public charity. Up to $100,000 may be transferred annually per spouse.

Heir to an inherited IRA? The IRS is providing relief to heirs of inherited IRAs who are subject to the 10-year rule, allowing them to skip required minimum distributions in 2023. However, there are reasons why one should take an RMD in 2023, although not required:

  • If he has high medical expenses, the medical expenses will offset the RMD income eliminating the income tax on the RMD
  •  By taking an RMD in 2023, he will have a smaller balance to distribute in the remaining years of the ten RMD years, avoiding larger RMDs at higher tax rates

Contact your tax advisor at Urbach & Avraham, CPAs to discuss options suitable for you.

Need to take an RMD in 2023…Perplexed?

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When is your Required Beginning Date (RBD) to take the first RMD?  Your first RMD (required minimum distribution) must have been taken by April 1 of the year following the year in which you reached 72 for those who reached age 72 by Dec. 31, 2022. The first RMD for those turning 72 after Dec. 31, 2022 must be taken by April 1 of the year following the year you turn 73. After that, your RMDs must be taken by Dec. 31 of each year.

Beneficiary of an IRA account? (Rules below apply to IRA owners who passed away after Jan. 1, 2020)

An individual non-spouse beneficiary must distribute the entire account balance by the 10th calendar year after the account owner’s death. If the IRA owner reached his required beginning date, the beneficiary must take annual RMDs based generally on his own life expectancy. These RMDs must begin by December 31 of the year after the owner’s death. Although the beneficiary must take annual RMDs, you will need to fully distribute the account within ten years from the owner’s date of death.

If the IRA owner passed away before the RBD, the RMDS are not required. However, the entire account balance must be distributed within ten years from the owner’s date of death.

The IRS is providing relief to heirs of inherited IRAs who are subject to the 10-year rule, allowing them to skip required minimum distributions in 2023. However, there are reasons why one should take an RMD in 2023, although not required:

  • If he has high medical expenses, the medical expenses will offset the RMD income eliminating the income tax on the RMD
  • By taking an RMD in 2023, he will have a smaller balance to distribute in year ten, avoiding a bunched higher RMD at higher tax rates

If an estate is the beneficiary of an IRA, and the account owner reached his RBD, the estate must make distributions based on the remaining life expectancy of the IRA owner. If the IRA owner passed away before his RBD, the assets must be completely distributed within five years of the owner’s passing, but no annual RMD is required.

IRA owner passed away in 2023? If the IRA owner passed away in 2023 prior to taking this year’s RMD, the beneficiary, whether an individual or an estate must distribute the RMD by the end of 2023.

Want to save income taxes on the RMD? – Use a Qualified Charitable Distribution (QCD) in 2023 For IRA owners with charitable intentions, there is a substantial tax benefit using a QCD. The owner contributes all or part of his RMD to charity. The portion contributed to charity will not be taxed. QCDs can be made as early as age 70.5, even though minimum distributions are not required until age 73. A QCD may only be made by an original account owner, not by a beneficiary.

What happens if I don’t take the RMD in 2023? If an account owner fails to withdraw an RMD, the amount not withdrawn is taxed at 25% (reduced from 50% for missed RMDs prior to Dec. 31, 2022).

Still confused? Everyone’s situation is different. Please consult with a tax advisor at Urbach & Avraham, CPAs, to analyze the impact on your personal situation.

 

ABCs of 2022 RMDs

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Perplexed? Need to take an RMD in 2022? 

Over age 72? – The age for withdrawing from retirement accounts was increased in 2020 from 70.5 to 72. Your first RMD (required minimum distribution) must be taken by April 1 of the year following the year in which you turn 72. After that, your RMDs must be taken by Dec. 31 of each year. However, if you became 72 in 2022, you may want to withdraw the first RMD in 2022. This will avoid having two RMDs in 2023 and bunching income into higher tax brackets. 

Beneficiary of an IRA account?- An individual non-spouse beneficiary must begin taking RMDs on the basis of his/her own life expectancy by Dec.31 of the year after the owner’s death. If the original account owner passed away in 2022 prior to taking this year’s RMD, it still must be withdrawn. The responsibility for taking the year-of-death RMD falls to the beneficiary.

Although the RMDs are calculated based on the beneficiary’s life expectancy, if the original account owner died after Jan. 1, 2020, you need to fully distribute the account within ten years from the owner’s date of death. In year ten, the balance of the account must be distributed. 

If an estate is the beneficiary of an IRA, and the account owner reached age 72, the distributions would be based on the remaining single life expectancy of the IRA owner. If the original account owner passed away in 2022 prior to taking this year’s RMD, the estate must withdraw it by the end of the year. If the owner was younger than 72, the assets must be completely distributed within five years of the owner’s passing, but no annual RMD is required. 

Want to save taxes on the RMD? – Use a Qualified Charitable Distribution (QCD) in 2022 For IRA owners with charitable intentions, there is a huge tax benefit using a QCD. The owner contributes all or part of his RMD to charity. The portion contributed to charity will not be taxed. QCDs can be made as early as age 70.5, even though minimum distributions are not required until age 72. A QCD may only be made by an original account owner, not by a beneficiary. 

What happens if I don’t take the RMD in 2022? If an account owner fails to withdraw a RMD, the amount not withdrawn is taxed at 50%. 

Still perplexed? Everyone’s situation is different. Please consult with a tax advisor at Urbach & Avraham, CPAs, to analyze the impact on your personal situation.