Required Minimum Distribution Rules for 2023

When you’re ready to retire, your retirement account is there for you to use as a source of income. However, you’re still required to withdraw a certain amount after you reach a certain age. This is mandated by the IRS and distributions are referred to as required minimum distributions (RMD).

SECURE ACT 2.0 increases the distribution age, reduces missed withdrawal penalties, and eliminates Roth RMDs. While your retirement plan fiduciary may have informed you of the current requirements and updates, our guide will further inform you of everything you need to know.

What are required minimum distributions?

At a certain age, you must withdraw a calculated amount from your retirement account annually. This is what’s known as a required minimum distribution. SECURE ACT 2.0 amends the previous RMD rules. Now, you must begin taking your withdrawals by the age of 73 if you turn 73 between 12/31/2022 and 1/1/2030.

It’s important to note that account owners who participate in a company-sponsored retirement plan can delay taking RMDs until they retire. However, if they are a 5% owner of the business, they cannot.

Higher required minimum distribution age

Previously, the age for taking RMDs was 72. SECURE ACT 2.0 raises the RMD age to 73 in 2023 and 75 in the year 2033.

How will this affect me?

With a higher RMD age in place, plan participants can have more time to allow their retirement accounts to grow before being required to take their first distribution.

Lower non-withdrawal penalties

The penalty for not taking an RMD was 50% of the amount required but not distributed. With SECURE ACT 2.0 in place, that amount is reduced to 25%. Additionally, If the oversight is corrected quickly, the penalty decreases to 10%.

How will this affect me?

Though the potential penalties aren’t as severe, it is still a hefty price to pay so staying on top of your distribution responsibilities is crucial.

The elimination of the Roth 401(k) RMD

SECURE ACT 2.0 now states that Roth 401(k) account holders are no longer required to take RMDs. Formerly, account holders needed to roll their Roth 401(k) accounts into their Roth IRAs in order to avoid an RMD.

How will this affect me?

With this change in place, participants can potentially save more for retirement without worrying about taking a required minimum distribution.

Staying updated on the required minimum distribution rules will help to prevent you from facing penalties later. Setting up automatic withdrawals, if possible, can also prove beneficial. Do you have additional questions regarding RMDs? Contact our ePlan consultants today.

This content is for educational purposes only, is not intended to provide specific legal or financial advice, and should not be used as a substitute for the legal advice of a qualified attorney or financial professional. The information may not reflect the most current legal developments, may be changed without notice and is not guaranteed to be complete, correct, or up-to-date.