SECURE 2.0 (S2), passed in late December 2022, includes nearly 100 new retirement plan provisions, several of which touch on required minimum distributions (RMDs). While many of S2’s provisions are quite complex, the RMD changes are among the more straightforward (though we use that term loosely when it comes to retirement plan rules).
Here is a quick rundown.
Postponed Required Beginning Date
OG SECURE started down the path of delaying the age at which participants must begin taking their RMDs, increasing it from age 70 ½ to age 72. S2 continues that trend by postponing RMDs to age 73, effective January 1, 2023. Looking way down the road to 2033, the start date jumps to age 75.
That seems simple enough in concept, but it can get a bit confusing when trying to apply it. Here are a couple of handy charts that should make these changes a bit easier to navigate.
|Birth Date||RMD Starting Age|
|Prior to July 1, 1949||70 ½|
|July 1, 1949 – December 31, 1950||72|
|January 1, 1951 – December 31, 1959||73|
|January 1, 1960 and later||75|
Let’s break that down a little further.
|Year of Birth||RMD Starting Age||RMD Starting Year||First RMD Due||Second RMD Due|
|1950||72||2022||April 1, 2023||December 31, 2023|
|1951||73||2024||April 1, 2025||December 31, 2025|
|1952||73||2025||April 1, 2026||December 31, 2026|
|1953||73||2026||April 1, 2027||December 31, 2027|
|1954||73||2027||April 1, 2028||December 31, 2028|
|1955||73||2028||April 1, 2029||December 31, 2029|
|1956||73||2029||April 1, 2030||December 31, 2030|
|1957||73||2030||April 1, 2031||December 31, 2031|
|1958||73||2031||April 1, 2032||December 31, 2032|
|1959||73||2031||April 1, 2033||December 31, 2033|
|1960||75||2035||April 1, 2036||December 31, 2036|
There are two more quick comments to add. First is that after the second RMD, future RMDs must be paid no later than each subsequent December 31st. Second is that a participant who is not a 5% owner of the company can further postpone RMDs beyond the above dates as long as s/he remains employed by the company.
This is one of those good news/bad news changes. First, the bad news - yes, there is still a penalty for failure to take an RMD on time. The good news, however, is that the penalties have been significantly reduced. Prior to S2, the penalty was 50% of the missed RMD amount. S2 reduces that penalty to only 10% if corrected within two years and 25%, thereafter. The IRS has been relatively lenient in terms of granting requests to waive penalties in the past. It remains to be seen whether they are as magnanimous now that the penalty amounts have been reduced.
RMDs from Roth Accounts
Even though participants have long been exempt from taking lifetime RMDs from Roth IRAs, the same has not been true of Roth 401(k) accounts. That created an incentive for participants to roll Roth accounts out of a plan to avoid taking those RMDs. S2 changed that by aligning the requirements such that Roth 401(k) accounts are also now exempt from lifetime RMDs. Note that this only applies to lifetime RMDs, which are those taken while the participant is still alive. Once a participant passes away, post-death RMDs are required.This new rule is effective for RMDs that are related to 2024 and later. Distributions related to 2023 but that are not paid until 2024 still fall under the old rules.
For more information, please visit our SECURE 2.0 Act Resource Page.