SECURE 2.0 Act – Section 107. and 325. Changes to Required Minimum Distribution Rules
Effective January 1, 2023, the age at which individuals must begin taking required minimum distributions (RMDs) from traditional IRAs and workplace retirement plans has been increased from age 72 to age 73.
The tax code requires that participants begin taking RMDs once they reach a specified age. The amount of the RMD is calculated by dividing an account’s value on December 31st by a life expectancy factor published by the IRS. This increase in the RMD beginning date will allow retirement savers to delay their first RMD until April 1st of the year following the year in which they turn age 73. In 2033, the RMD age will increase again, to age 75.
Note that while the RMD rules specify the latest date when participants must begin taking distributions, each participant may begin taking distributions earlier. Delaying RMDs is not a one-size-fits-all strategy, so be sure to work with your financial advisor to implement an approach that works best for you and your family.
Also starting in 2023, the penalty for failing to take a RMD will be reduced from 50% of the amount required to 25%. The penalty for traditional IRA accounts will be reduced to 10% if the account owner corrects the failure within a two-year correction period.
Beginning in 2024, designated Roth accounts (Roth accounts in workplace retirement plans) will no longer be subject to RMDs.
The rollout of the SECURE 2.0 Act (SECURE 2.0) was meant to enhance and strengthen America’s retirement system and will impact how you save and withdraw money from your retirement accounts. These changes should provide more flexibility in terms of reaching your retirement savings goals.
If you have any questions about SECURE 2.0, please contact a member of the Schneider Downs Retirement Solutions team at [email protected].
This article is part of a series highlighting the impact of the SECURE 2.0 on retirement plan sponsors, participants and retirees. You can view our full catalog of SECURE 2.0 articles here or download our comprehensive SECURE 2.0 eBook here.
About SECURE 2.0
SECURE 2.0 was signed into law by President Biden on Dec. 29, 2022, as part of a $1.7 trillion omnibus spending bill.
This massive piece of legislation builds on the foundation that was laid by the 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act to further improve upon the success of the private employer-based retirement system by making it easier for businesses to offer retirement plans and for individuals to save for retirement.
The full text of SECURE 2.0, including provisions that affect pension and cash balance plans, may be found on pages 2,046-2,404 of the omnibus Consolidated Appropriations Act of 2023.
About Schneider Downs Retirement Solutions
Schneider Downs Retirement Solutions has experience in all facets of qualified and non-qualified plan delivery, which allows us to be flexible to the needs and direction of our clients. Our specialized team of advisers and consultants provide objective advice and expertise to help plan sponsors govern their retirement plans appropriately, mitigate risk, improve participant outcomes and support efficient and compliant plan operations.
Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.
