Most everybody born after 1967 knows that the IRS requires distributions (RMDs) from tax-deferred retirement accounts when the owner reaches a specific age. Until recently, people who reached age 70.5 needed to take a required amount from their tax-deferred retirement accounts every year. Then the SECURE Act passed in 2019 moved the age for the first RMD to 72. And Now, SECURE Act 2.0 has moved the age of the first RMD to 73.
A fun fact about the change is that if you were required to make IRA distributions in 2022, you must continue. But, if you did NOT have a required distribution last year, you will NOT have a required distribution this year. And if you are born after 1960, you don’t start RMDs until you are aged 75.
Required IRA Distribution PENALTY Reduced
If you fail to make your required distribution, the penalty is reduced from 50% of the required amount to 25% of the required amount. And, if you fix it promptly, (within two years of the year you failed to take it) the penalty is reduced to 10% of the required amount.
In 2024, No RMDs for Roth Accounts in Employer Retirement Plans.
Up to now, if you retired and left your savings in the company retirement plan, you were required to make distributions from your Roth accounts along with your traditional accounts. In 2024, this will end thanks to the SECURE Act 2.0.
What Retirement Accounts are Subject to RMD Rules?
Can You Satisfy the RMD Rules with the Purchase of an Annuity Contract?
A key fact of Required IRA distributions is that you MUST remove the money from the tax-deferred account, but you do NOT have to spend the money. You are free to invest it as you wish, including in a tax-deferred annuity.
Tax Considerations
Be sure you understand the income and potential estate tax implications associated with your retirement accounts.
Inherited IRAs and Retirement Plans
Your RMDs from your IRA or workplace retirement plan will cease after your death, but your non-spouse designated beneficiaries will then typically be required to liquidate the account within 10 years. A spouse beneficiary has a range of new options under SECURE Act 2.0 as shown in the illustration below.
So, with all that, I think you might agree that it could be very helpful to talk all this through with an experienced, well-trained CERTIFIED FINANCIAL PLANNER™ professional near you. I am a fiduciary who is always my clients’ advocate and I love to talk about this stuff. Follow this LINK to find a time for us to visit about your situation.
Yes, I am a CFP® professional. I’m always a fiduciary and I work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice.
If this article has you thinking about your own circumstances, contact my office at rdunn@dunncreekadvisors.com. I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.