The SECURE 2.0 became law at the end of 2022 and its intent is to improve retirement security for American workers. Much of the law is focused on helping workers save more for retirement and most of those items don’t go into effect until 2024, at the earliest. But there are some big changes effective this year that affect people already retired or about to retire.
Here is a quick summary:
- Age to Start Required Minimum Distributions: The age for required minimum distributions is increased to 73. This has increased 1 year from age 72. So, if you are turning 72 in 2023, you can now wait until April 1st of 2025 to start taking your required minimum withdrawals.
- Penalty For Not Taking Your Required Minimum Distribution: Before SECURE 2.0, failing to take a RMD could lead to one of the steepest penalties in the entire tax code, as missing a RMD or not taking a big enough RMD triggered a 50% excise tax on the distribution shortfall. SECURE 2.0 reduces the penalty to 25% in all cases. In addition, the penalty drops down to 10% if the necessary RMD is taken by the end of the second year following the year it was due.
- Required Minimum Distributions for Roth 401k and 403b accounts: The new law removes pre-death RMDs from Roth accounts, like Roth 401ks and Roth 403b accounts. Moving forward, those accounts won’t be subject to the RMD rules before the account holder dies. This was put in so theses accounts would be treated the same way Roth IRAs are for RMD purposes.
Please comment or send an email if you have any questions. Thanks!
Joe Baker, CFP®
Baker Asset Management, LLC
