The Secure 2.0 Act, passed in 2022, brought significant changes to Required Minimum Distribution (RMD) rules governing tax-deferred retirement accounts. These changes impact when withdrawals must begin and which accounts are subject to RMDs. Understanding these updates is crucial for investors planning for retirement. This article outlines two key RMD changes implemented in 2024 that will affect your retirement strategy.
Table Content:
Starting Age for RMDs Pushed Back to 73
Historically, RMDs commenced at age 70 ½ for those born before July 1949 and age 72 for those born between July 1949 and December 1950. The Secure 2.0 Act has now raised the starting age to 73 for individuals born in 1951 or later. This change applies to various retirement accounts, including:
- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- 401(k) plans
- 403(b) plans
- 457(b) plans
- Profit-sharing plans
- Other defined contribution plans
While RMDs are generally due by December 31st each year, the first RMD can be deferred until April 1st of the following year. However, delaying the first RMD doesn’t change the deadline for subsequent withdrawals. The second RMD is still due by December 31st of the same year.
Impact for 2024: Individuals born in 1951 or later who turned 73 in 2024 must take their first RMD by April 1, 2025. Importantly, even if the first withdrawal is delayed, the second RMD must be taken by December 31, 2025.
Roth 401(k) and 403(b) Plans Exempt from Lifetime RMDs
Previously, designated Roth accounts within 401(k) and 403(b) plans were subject to RMDs. As of 2024, the Secure 2.0 Act eliminates this requirement for the original account holders during their lifetime. This significant change allows for greater flexibility in managing Roth retirement savings.
While account holders are no longer subject to lifetime RMDs for Roth 401(k) and 403(b) plans, beneficiaries inheriting these accounts must still adhere to RMD regulations.
Furthermore, the penalty for failing to take a required RMD has been reduced. Prior to 2023, the excise tax was 50% of the undistributed amount. The Secure 2.0 Act lowered this penalty to 25%, and it can be further reduced to 10% if the issue is rectified within two years. Individuals who miss an RMD must file Form 5329 with their tax return.
Impact for 2024: Roth 401(k) and Roth 403(b) account holders are no longer required to take RMDs during their lifetime. However, beneficiaries of these accounts will still be subject to RMD rules upon inheritance. The penalty for failing to take an RMD has been significantly reduced.
Conclusion
The 2024 RMD rule changes ushered in by the Secure 2.0 Act offer important planning opportunities for retirement savers. The increased starting age for RMDs and the elimination of lifetime RMDs for Roth 401(k) and 403(b) accounts provide greater flexibility and control over retirement funds. Consulting with a financial advisor is recommended to understand how these changes specifically affect your individual retirement plan. Staying informed about these updates will ensure you are well-prepared to maximize your retirement savings.
