Quarterly Bulletin News

Required Minimum Distribution Age Raised in 2023

Required Minimum Distributions See Big Changes in 2023

The SECURE Act in 2019 raised the beginning date for taking required minimum distributions (RMDs) from age 70 to age 72. Now, three years later, the Secure 2.0 Act raises the age once again from age 72 to 73 effective January 1, 2023, and again to age 75 starting on January 1, 2033. 

With this recent change in rules, it may present confusion regarding when an account holder should begin taking RMDs.

  • Those who turned 72 in 2022 must take their RMD no later than April 1, 2023.
  • Those who turn 72 in 2023, the required beginning date for their first RMD is April 1, 2025, for 2024.

RMDs are the minimum amounts that need to be withdrawn from retirement accounts each year. This helps ensure that these accounts do not avoid taxes. This increase in the RMD age is appropriate given that participants are living and working longer. Now participants will be able save more for retirement in their tax-deferred accounts.

Potential Tax Implications

While delaying RMDs will help participants grow their account balance, there may be greater tax implications especially if participants find themselves in a higher tax bracket in retirement. There are many complexities as well as tax-efficient strategies involved with taking RMDs. As an account holder approaches retirement, it may be a smart decision to consult a professional tax advisor to discuss specific details when taking distributions.

Reduction in the Penalty for Failing to Take an RMD Distribution

The SECURE 2.0 Act also reduced the penalty for failing to take an RMD. Effective in 2023, the penalty will be reduced from 50% to 25% of the RMD amount not taken. Additionally, the penalty drops once again to 10% if the account owner withdraws the RMD amount previously not taken and submits a corrected tax return in a timely manner. The key takeaway here is if you miss an RMD, correct it and report it as quickly as possible.

It is important to note that the IRS Uniform Lifetime Table that became effective in 2022, will still be applicable for those who do not have to take their RMDs until age 73. Your ABG representative is available to help you answer any questions you may have about the changes in RMD rules and how it may impact your retirement plan.