Every year, millions of retirees face a critical question: When and how must I start withdrawing money from my retirement accounts? These mandatory withdrawals, known as Required Minimum Distributions (RMDs), are a key piece of retirement planning—and recent legislation has changed the rules again.
Thanks to the SECURE 2.0 Act, passed in 2022, the RMD landscape is shifting. If you have an IRA or a workplace retirement plan like a 401(k), it’s essential to understand how these changes might affect your financial future. Let’s break it down into simpler terms.
What Are RMDs?
RMDs are the minimum amounts you’re required to withdraw each year from most tax-deferred retirement accounts once you reach a certain age. These rules exist because the IRS wants to eventually collect taxes on money that has grown tax-free over the years.
Before SECURE 2.0, you had to start taking RMDs at age 72. Now, that age has changed—and it’s not one-size-fits-all anymore.
What’s New with SECURE 2.0?
The SECURE 2.0 Act introduced gradual increases in the RMD age, giving retirees more time to let their savings grow tax-deferred:
- If you were born between 1951 and 1959, your RMDs begin at age 73.
- If you were born in 1960 or later, RMDs begin at age 75 (1).
This change gives individuals extra years to grow their retirement funds before they must begin withdrawing, offering more flexibility for financial planning.
Key Highlights You Should Know
1. RMDs Still Apply to Most Retirement Accounts
Traditional IRAs, 401(k)s, 403(b)s, and other tax-deferred accounts are still subject to RMDs. However, Roth IRAs are exempt during the account holder’s lifetime. Notably, Roth 401(k)s will also be exempt starting in 2024—a major shift for those with employer-sponsored Roth plans (1).
2. Penalties for Missing RMDs Have Decreased
If you miss an RMD, the penalty has been reduced from 50% to 25% of the shortfall. And if you correct the mistake quickly—generally within two years—the penalty may be reduced to 10% (1).
3. You Can Delay RMDs from Employer Plans If You’re Still Working
If you’re still employed at age 73 and don’t own more than 5% of the company, you may be able to delay RMDs from your current employer’s plan until after retirement. This rule does not apply to IRAs (1).
Why Does This Matter?
These changes offer more time to plan strategically—potentially lowering taxes and improving retirement income flexibility. But the rules can also create complexity.
For instance, if you turn 73 in 2025, your first RMD will be due by April 1, 2026. But if you delay until that deadline, you’ll need to take two RMDs in one year, which might increase your tax burden that year (1).
What Should You Do Now?
Understanding how and when RMDs apply to your situation is essential, especially under the new SECURE 2.0 rules. You may want to revisit your retirement income strategy, consider Roth conversions, or simply prepare to manage cash flow more effectively once RMDs begin.
How will these changes affect your long-term retirement plan? Could you benefit from delaying withdrawals—or is now the right time to act?
Let’s Talk It Through
The SECURE 2.0 Act offers greater flexibility, but with it comes more decisions. If you’re uncertain about how these updates apply to you, you’re not alone. A complimentary conversation can help you get clarity, plan, and avoid costly mistakes.
Click the “Contact me” button to schedule a complimentary meeting.
Source:
(1) T. Rowe Price. “A Closer Look at RMDs and the New SECURE 2.0 Rules.” T. Rowe Price, https://www.troweprice.com/personal-investing/resources/insights/a-closer-look-at-rmds-and-the-new-secure-20-rules.html
For more complete information about your 401(k) investment options, call your company’s plan administrator or your financial professional for a prospectus. The prospectuses contain details on investment objectives, risks, fees, and expenses, as well as other information about your plan’s investment options, which you should carefully consider. Please read the prospectuses thoroughly before sending money.
Roth accounts require the owner to be 59.5 years old and have had the account open for 5 years to take penalty-free withdrawals. This information is being provided only as a general source of information and is not intended to be the primary basis for investment decisions. It should not be construed as advice designed to meet the particular needs of an individual situation. Please seek the guidance of a financial professional regarding your particular financial concerns. Consult with your tax advisor or attorney regarding specific tax issues. We do not provide tax or legal advice or services. Always consult with qualified tax and legal advisors concerning your circumstances. We are not affiliated with or endorsed by any government agency, and do not provide tax or legal advice or services.
