RMDs in for Big Changes Following SECURE Act 2.0
KEY POINTS
- The SECURE Act 2.0 raises the age requirement for required minimum distributions from pre-tax accounts.
- The penalty for failing to take an RMD has been sliced in half.
- Other sections of the law provide new options to surviving spouses and annuitants.
The law could give retirees more time to grow their nest egg.
For millions of retirees, required minimum distributions (RMDs) play a key role in how a lifetime of savings are withdrawn. The SECURE Act 2.0, signed into law in December 2022, included dozens of provisions making broad changes to how Americans plan for retirement. A handful of these provisions will change the way a generation deals with RMDs in their 401(k)s and IRA accounts. Whether you are currently taking RMDs or will be in the coming years, the SECURE Act 2.0 could change the way you fund your retirement.
RMD age increased
In 2019, the original SECURE Act raised the minimum age requirement for retirees to begin taking RMDs. The SECURE Act 2.0 has carried on this tradition by once again ratcheting up the minimum age for RMDs starting in 2023 and beyond.
Prior to 2019, retirees who reached age 70½ had to begin taking distributions from their retirement accounts. The original SECURE Act raised that age to 72 for retirees who had not yet reached age 70½, and were therefore not subject to RMDs. Thanks to the SECURE Act 2.0, the RMD age is again being raised. Starting in 2023, the RMD age will be 73, and will further increase to 75 in 2033. The table below will give you a good idea of your RMD age based on your birth year.
| Birth Year | Age of First RMD |
|---|---|
| 1949 or earlier | 70 ½ |
| 1950 | 72 |
| 1951–1959 | 73 |
| 1960 or later | 75 |
It's important to note that the SECURE Act 2.0 does not change the minimum age for those who are already subject to RMDs. The new legislation will only apply to those who reach age 73 after Jan. 1, 2023 or will reach age 75 after Jan. 1, 2033.
RMD penalties decreased
Failing to take a required minimum distribution can be a costly mistake for a retiree to make. The new law might take some -- but not all -- of the sting out of a forgotten distribution.
Prior to 2023, the price for failing to take a required minimum distribution was a 50% excise tax on the amount of the distribution. This is one of the steepest penalties assessed by the IRS, and a retiree could easily lose thousands or tens of thousands of dollars in a given year.
The SECURE Act 2.0 reduced that penalty by half to 25%, and offered further leniency for timely corrections. Taxpayers who correct the distribution within two years will see their penalty reduced to 10%.
Other changes
The new law also gives surviving spouses more options when it comes to taking RMDs. Under Section 327 of the legislation, a surviving spouse may elect to be treated as the deceased spouse regarding RMD timing. This provision may allow an older surviving spouse to buy precious years of growth by delaying distributions from their younger, deceased spouse's retirement plan account.
Prior to the legislation, some annuity provisions were largely unavailable in retirement accounts due to required minimum distribution actuarial testing. The new law would remove certain barriers, allowing new annuity products into retirement plans. Retirees could see inflation-adjusted annuities, return of premium guarantees, and period certain guarantees in retirement account annuities
For retirees in their sixties and early seventies, the SECURE Act 2.0 will substantially change the landscape of required minimum distributions. However, those beyond RMD age should still pay attention. Reduced penalties could save you a buck, surviving spouses may have more flexibility, and new annuity options may be available to you.
Our Research Expert
Charlie Pastor, CFP®, is a freelance writer for Motley Fool Money. Founder of a Registered Investment Advisory firm. Charlie has reached thousands with educational seminars and videos shared on social media.
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