RMD Rules Will Change This Year


RMD Rules Will Change This Year

Posted by Infinite Wealth Advisors, LLC
1 year ago | January 9, 2023

For many years, qualified retirement accounts imposed a rule on required minimum distributions (RMDs), so that account holders must begin RMDs at age 70 ½. The SECURE Act changed that age to 72, giving retirees a bit more time to allow their assets to grow before taking withdrawals. Now, the SECURE 2.0 Act has again bumped that age to 73 and will eventually phase the requirement up to age 75. Here’s what you need to know.

If you were planning to begin distributions earlier anyway, nothing changes for you. If you prefer to leave your money in the account a bit longer to allow for more growth, beginning in 2023 you can wait until age 73 to take your first RMD.

For those of you in your fifties and sixties, looking toward the future, the minimum age for beginning RMDs will increase to 75 in 2033. You might choose to retire and live off of other income until that age, or you might continue to work for longer.

What happens if you don’t take your RMD on time? The penalty for failing to do so has long been set at 50 percent of the amount you should have taken, and it has historically been one of the stiffest tax penalties on the books. Now the SECURE 2.0 Act has lowered the penalty to 25 percent, and if you take steps to remedy your error and take the correct RMD in the following year, you can reduce the penalty further to only 10 percent of the RMD you should have taken.

Even with reduced penalties, 10 or 25 percent of your RMD can be a hard hit to take. It’s still better to correctly calculate your RMD and be sure to take it on time.

As always, there is still the possibility of “double dipping”. If you wait until the last possible minute to take your first RMD, you might have to take another before the end of the calendar year. That could bump up your taxable income for the year and trigger additional taxes that way.

Meet with us in the years before retirement, and particularly before your RMDs are set to begin, so that we can help you correctly time your distributions while avoiding unnecessary penalties and taxes.

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