RMDs or required minimum distributions for retirement plan accounts have been around for years but in recent years, there have been some changes.
So, here is a little history lesson and an update on what you need to know about RMDs and your retirement plan account.
With the passage of the Tax Reform Act of 1986, RMDs came to be, meaning anyone 70 ½ had to take a certain amount of money out each year.
Then, some years later, the SECURE 1.0 Act increased the age to 72 for RMDs – it went into law on Jan. 1, 2020. A short time later, SECURE 2.0 increased the age again and made some additional changes that will impact you this year.
Under SECURE 2.0, the age for RMDs is now 73, starting Jan. 1, 2023. What this means is, if you turned 72 before Jan. 1, 2023, you had to take RMDs before April 1, 2023 – no foolin’!
But if you turn 72 after Dec. 31 2022, your RMDs begin when you are 73.
However, that isn’t the end of it! In 2033, the age will increase again, meaning those who turn 73 AFTER Dec. 31, 2032 will have to take an RMD at age 75.
Those aren’t the only changes, either. In 2024, if you have a Roth IRA in a qualified plan, those are no longer subject to RMDs, meaning both pre-tax and money in your Roth IRA are only subject to RMDs from the pre-tax money – not the Roth money.
And effective for tax year 2023, if you fail to take your RMDs, there will be an decrease in the excise tax – from 50% to 25%. If you fix the problem quickly, that tax will be cut even more to 10%.
So, if you are a plan sponsor, now is the time to update your records and make sure you are notifying participants of these changes.
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