How RMD Changes Protect Your Retirement Savings

The original SECURE Act of 2019 extended the Required Minimum Distribution (RMDs) age from 70½ to 72 for retirement accounts. 

Now with the passing of the Omnibus Bill, SECURE Act 2.0 extends the RMD beginning date to age 73, starting in 2023.

Not only does the new legislation push back the required minimum distribution age, but penalties for not taking withdrawals are also changing – and changing in investors’ favor. 

If you are nearing retirement, it’s critical you stay up to date on these changes, and how they may affect your retirement portfolio. 

Understanding the new RMD rules –  including how the penalties for not taking withdrawals on time will affect you – will help you better plan for a prosperous retirement.

What Are Required Minimum Distributions (RMDs)? 

RMD rule changes

RMDs are the minimum amount of money you must withdraw from your 401(k) account each year, starting at age 73. 

The exact amount you need to withdraw is calculated based on your account balance and life expectancy.

RMDs were created to ensure that people don’t use 401(k) plans as a way to avoid taxes indefinitely. 

Because 401(k) contributions are made with pre-tax dollars, the government wants to ensure that you eventually pay taxes on that money.

This minimum distribution applies to all of these plan types:

  • Traditional IRAs
  • SEP IRAs
  • SIMPLE IRAs
  • 401(k) plans
  • 403(b) plans
  • 457(b) plans
  • Profit sharing plans
  • Other defined contribution plans

RMD Changes Starting This Year

RMD rule changes

Secure Act 2.0 RMD changes will be phased in over the next 10 years. 

Here’s a breakdown of when you need to take RMDs: 

Phase #1: In 2023, RMDs will now start at age 73. 

If you have already started RMDs, this will not change for you. Anyone who turned 72 in 2022 or earlier follows the old rules.

If you turn 72 in 2023, you can take your first RMD by December 31, 2024, or you could delay it to April 1, 2025. If you delay until April, you will need to take 2 RMDs in 2025. One for 2024, and one for 2025.

Phase #2: Starting in 2033, the RMDs move up to 75.

Penalties for Not taking RMDs Changed

RMD rule changes

Penalties for not taking RMDs on time have also changed with the passing of the Secure Act 2.0. 

  • The hefty 50% penalty for not taking RMDs will drop to 25% in 2023.
  • The penalty drops to 10% if you take the required amount by the end of the second year that it was due. If your RMDs for 2023 aren’t taken, you have until December 31, 2025, to take the withdrawal and only pay the 10% penalty.
  • The penalty could be waived completely if you didn’t take the RMD due to an unforeseen event (like illness), but then withdrew it as soon as you could. You would have to ask the IRS for a penalty waiver.

Roth Changes

RMD rule changes

Good news for those contributing to their Roth 401(k)s. 

Starting in 2024, the Roth option will now be exempt from RMDs – just like it is for the Roth IRA. You no longer have to roll your Roth 401(k) into a Roth IRA to stop the required minimum distribution rule.

Better Prepare for a Life of Abundance in Retirement.
Check us out on YouTube.

Watch Videos

0 0 votes
Article Rating

401(k) Maneuver™ is offered by Royal Fund Management, LLC, which is registered as an investment adviser with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. Royal Fund Management, LLC, is not affiliated with or endorsed by NASDAQ.

All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals, and economic conditions may materially alter the performance of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client's investment portfolio. There are no assurances that a client’s portfolio will match or outperform any particular benchmark. Asset allocation and diversification do not ensure or guarantee better performance and cannot eliminate the risk of investment losses. Projections are based on assumptions that may not come to pass.

Images and photographs are included for the sole purpose of visually enhancing the website. None of them are photographs of current or former clients. They should not be construed as an endorsement or testimonial from any of the persons in the photograph.

All third-party trademarks, including logos and icons, referenced in this website and our content, are the property of their respective owners. Unless otherwise indicated, the use of third-party trademarks herein does not imply or indicate any relationship, sponsorship, or endorsement between 401(k) Maneuver and the owners of those trademarks. Any reference inside this website or content to third-party trademarks is to identify the corresponding third-party goods and/or services.

0
Would love your thoughts, please comment.x
()
x

Select a Date from the Calendar below

UPDATE YOUR 401(k) ACCOUNT

Select a Date from the Calendar below

UPDATE YOUR 401(k) ACCOUNT

Have questions? Need help?

Book Your Complimentary

15-Minute 401(k) Strategy Session


logo

Looking for tips that might maximize your retirement
savings and help you be a better steward of your money?

Subscribe to our 401(k) Blog

The go-to-source for your retirement investing and saving tips

5 401(k) Accounts Mistakes that May Negatively Affect Retirement Income

Download Your Copy Today

*Your privacy is important to us. We do not rent, sell or share your information.


Why Account Balancing & Allocation May Affect 401(k) Performance

Download Your Copy Today


*Your privacy is important to us. We do not rent, sell or share your information.


The 5 Top Costly 401(k) Rollover Pitfalls

Download Your Copy Today

*Your privacy is important to us. We do not rent, sell or share your information.

Make the Best Decision for Retirement:
Understanding the Different Types of
Financial Advisor Licenses

Download Your Copy Today

*Your privacy is important to us. We do not rent, sell or share your information.


How Popular Advice On Target Date Funds May Be
Working To Undermine Your 401(k) Retirement Savings

Download Your Copy Today

*Your privacy is important to us. We do not rent, sell or share your information.


3 Things That May Supercharge Your Future
401K Performance...Even In a Down Economy

Download Your Copy Today

*Your privacy is important to us. We do not rent, sell or share your information.