By Matthew Kipnis with James F. Burdi
Good news for retirees and those nearing retirement: new governmental regulations have raised the minimum age for Required Minimum Distributions (RMDs), the annual minimum that must be taken out of a retirement account, to 73.
Pre-tax retirement accounts like 401(k)s and IRAs require their owners to either start withdrawing money at a certain age or incur a costly financial penalty for failing to withdraw. As many nearing retirement are all too aware, RMDs are a common source of concern. Managing retirement assets is daunting enough without the threat of a financial penalty.
The IRS had previously required individuals to start taking RMDs at age 72 (the Setting Every Community Up for Retirement Enhancement—SECURE—Act, passed at the end of 2019, raised it from 70 ½).
However, the SECURE 2.0 Act, passed in December 2022, implemented several wide-sweeping changes. Effective January 1, 2023, the minimum age to start taking RMDs is 73.
Additionally, starting January 1, 2033, the minimum age will be raised again to 75.
Other noteworthy changes under the SECURE 2.0 Act include a significant reduction of the penalty for failing to take an RMD.
Previously, the fine incurred was 50% of the amount that an individual failed to withdraw. Effective January 1, 2023, the fine is 25%.
The Act also allows for that fine to be further reduced, from 25% to 10%, if the individual corrects the failure to withdraw in a future year and reports the full value of the withdrawal on their taxes.
The Act additionally includes several changes that facilitate easier access to pre-tax retirement accounts. Of note, individuals can now make emergency withdrawals from pre-tax retirement accounts prior to retirement, subject to certain rules and conditions.
For more information about these pre-tax retirement account changes, or any other changes under the SECURE 2.0 Act, contact us.
Matthew Kipnis is a law clerk pending his bar admission in VMM’s Business & Transactional Law practice.
James Burdi is a partner in VMM's Wills, Trusts, and Estates and Elder Law Practices, concentrating in Trust and Estate Planning and Administration. He heads the firm's Special Needs Planning subpractice. He can be reached at email@example.com and 516.438.4385 x130.