The SECURE 2.0 Act, enacted on Dec. 29, 2022, made changes to the required minimum distributions (RMDs) for your retirement accounts. An RMD determines the age you must start withdrawing money from your accounts, as well as the amount that should be withdrawn.
One noteworthy update was the RMD age being pushed yet again, which allows accountholders to take further advantage of tax-deferred benefits. The last time the age increased was in 2019, due to the original SECURE act.
It’s important to understand the new RMD rules to best manage your retirement accounts and avoid penalties as you near your golden years.
New RMD Rules
Some RMD rules begin in 2023, while others will become active in years to come. The new rules include the RMD age increase to 73, a set plan to eliminate RMDs for Roth IRAs, and the 25% decrease in tax penalties.
The new RMD rules affect your 401(k) plans, 403(b) plans, 457(b) plans along with traditional IRAs and IRA-based plans such as SEPs and SIMPLE IRAs.
When the New RMD Rules Take Effect
The age you must start taking RMDs rises to 73.
Tax penalty is reduced from 50% to 25%.
RMDs are no longer required from Roth IRA accounts, even after the death of the owner.
The age you must start taking RMDs rises to 75.
RDM Age Increase
If you turn 72 after Dec. 31, 2022, you qualify for the new rule. So, you will start taking RMDs from your retirement accounts when you turn 73. You will be required to take your first RDM on April 1, 2025, for 2024.
The SECURE 2.0 Act has also set the RMD age to rise to 75 in 2033. Your savings can sit in your 401(k) and IRA longer, which decreases your taxable income.
Eliminating RMDs for Roth IRAs
In 2023, Roth IRAs still require RMDs after the owner of the account passes away. However, the SECURE 2.0 Act will be eliminating RMDs for Roth IRAs altogether.
Starting in 2024, RMDs will not require RMDs, even after the owner passes.
If you don’t take your RMD at the right time, you will face a penalty upon the amount you failed to withdraw. Originally, the penalty was 50%, but it has now dropped to 25% in 2023.
For example, if you failed to withdraw $6,000, then $1,500 would be subject to the 25% tax penalty. If you manage to correct the RMD within two years, the penalty drops to 10%.