Has your RMD start date been delayed as part of the Secure Act 2.0?
The retirement planning landscape has undergone significant changes since Congress was pressed to take action as a result of the impact COVID-19 had on America throughout 2020 and beyond. There were two major Acts that were successfully passed in response to the pandemic with the most recent becoming law in December 2022.
- Setting Every Community Up for Retirement Enhancement (SECURE) Act passed in 2019
- Consolidated Appropriations Act of 2023, on omnibus spending bill, commonly known as SECURE Act 2.0
One of the major levers that was subject to adjustment throughout these sweeping changes involved the Required Minimum Distribution (RMD) threshold ages and associated penalties with failure to take timely distributions.
- The Tax Reform Act of 1986 first established the RMD which mandates that individuals take distributions from qualified retirement accounts and pay the associated taxes that had been deferred up until distribution. The initial “threshold age” to begin taking these necessary distributions was set at age 70 ½.
- The SECURE Act of 2019 was the first change to the threshold age in over 30 years, and resulted in pushing the beginning age to 72 starting in 2020 for those turning 70 ½ in 2020 or later.
- The SECURE Act 2.0 of 2022 then pushed back the beginning age one step further to 73 starting in 2023. Furthermore, starting in January 1, 2033 (10 years later), the threshold is set to rise again to age 75.
- If you have already begun taking your RMDs, you are required to continue to do so.
- Here is a summary of where we stand today as a result of the SECURE Act 2.0:
This means that individuals can now choose to delay taking their first RMD until April 1 of the following year in which they reach age 73. Other than in the first year, where you can delay collection until April 1st of the following year, all RMDs must be taken by year-end.
This means that there will be NO first-time RMD requirements in 2023.
Also, the penalty for failing to take a timely RMD has been slashed to 25% of the undistributed amount instead of the prior 50%.