SECURE Act 2.0: RMD Age Going Up; Penalty for Missed RMDs Going Down.*
SECURE Act 2.0 builds on SECURE Act 1.0 by further increasing the age at which mandatory retirement account distributions begin. SECURE 2.0 raises the required minimum distribution (RMD) age from age 72 to age 73 beginning January 1, 2023, for individuals who turn 72 in 2023, and to age 75 starting January 1, 2033, for those individuals who turn age 73 after December 31, 2032. Let’s take a look at what this means for IRA (and other retirement account) owners.
How the age increases look when broken down:
Birth Year: SECURE 2.0 RMD Age:
Before 1951……………………Age 72 (no change)
1951 - 1959…………………….Age 73
After 1960………………………Age 75
This pushes the RMD starting age back for surviving spouses who remain the sole beneficiary of their deceased spouse’s IRA. A surviving spouse may now wait until the year their deceased spouse reached age 73/75 before taking distributions.
No one will start RMDs in 2023 or 2033 because of their age.
This is probably not going to have much of an impact on most IRA owners who will need to access IRA funds well before their RBD to meet living expenses.
However, if an account owner is able to wait until their RBD to begin taking distributions, this presents a planning opportunity in this enhanced “gap” period to take advantage of Roth IRA conversions.
Note, too, that while the RMD age is increasing, there is no corresponding change to the distribution tables that determine an owner’s RMD in a given year. Even though an IRA owner may take advantage of the later RBD, the owner will have to take more out when he does begin than he would if he started at an earlier age.
SECURE 2.0 also brings relief to account owners who fail to take their RMD for a tax year. Effective 2023, the penalty for a missed or insufficient RMD is reduced from 50% to 25%. The penalty is further reduced to 10% if the error is fixed within a statutory “correction window.” The correction window begins on the date the tax is imposed and ends the earlier of a) when a notice of deficiency is mailed to the taxpayer, b) when the tax penalty is assessed by the IRS, or c) the last day of the second tax year after the tax penalty is imposed.
I’ll continue to highlight other SECURE Act 2.0 provisions that will more broadly impact taxpayers as we slog through the various provisions in the Act.
*My apologies to P.D. Eastman. (Been reading “Go Dog Go” to the grandbaby - a lot.)