In 2022 Congress passed the SECURE ACT 2.
There are a number of retirement savings provisions in the bill. The most notable is the change to the
Required Minimum Distribution. RMD is
the amount of money you must take from your tax deferred retirement accounts
when you turn a certain age. For decades
it was set at 70 ½ years old. Then the
first SECURE ACT raised it to 72. Now
congress has decided to raise it again.
This is a big addition for seniors, allowing them to keep money in their
retirement account a little longer, growing tax deferred. While the new act will raise the RMD age to
75, it won't be all at once. In 2023,
you now will be able to wait until age 73 to take your distribution. This is a big plus for those turning 72 in
2023 (over 3 million Americans), as under the old rules they would have to take
their first distribution.
The law will keep this at age 73 for several years and then raise it to age
74 in 2030 and finally to age 75 in 2033.
Another change in the law is a reduction of the RMD penalties. If you fail to take your RMD in time you
would be hit with a 50% penalty. That is
getting reduced to 25%. And additionally,
it will be reduced to 10% if you make your distribution by the end of the
following year.
According to the old rules, if an account holder dies before RMDs are
required and his or her surviving spouse is the beneficiary, RMDs from the
inherited account aren't required until the year in which the deceased account
holder would have reached age 72. But
now the surviving spouse will be allowed to be treated as the deceased account
owner for RMD purposes starting in 2024. In some cases, this will allow the
surviving spouse to delay taking RMDs from the inherited account, say if the
surviving spouse is younger than the deceased spouse. There will be specific procedures with the
IRS so check with your financial advisor to see if this happens to you.
There are also some changes to how ROTH 401Ks are treated in the Act, but that is for another time.
