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Why did rmd age change?

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Answer # 1 #

IRA owners who turn 72 in 2023 (those born in 1951) do not have an RMD due this year. Instead, they will need to start taking RMDs when they attain age 73 in 2024. This RMD must be satisfied before their new required beginning date (RBD) of April 1, 2025. They should keep in mind that if they choose to delay distributing their RMD until 2025 but before April 1, 2025, they will have two RMDs to withdraw in 2025. Their 2025 RMD must be distributed by December 31, 2025.

EXAMPLE: John, a Traditional IRA owner, turns 72 on May 18, 2023. Because SECURE 2.0 delays RMDs until an account owner is 73, he no longer must withdraw an RMD for 2023. His previous RBD would have been April 1, 2024. Instead, John’s first distribution year is next year, when he turns 73. So John must take his 2024 RMD by April 1, 2025. If he delays his 2024 distribution until 2025, he still must take his 2025 RMD by December 31, 2025.

Account owners who turned 72 in 2022 must continue to distribute their 2022 RMD no later than April 1, 2023. The new law is effective in 2023 and doesn’t apply to individuals born in 1950 or earlier who have RMDs due for 2022 and later years.

EXAMPLE: Alicia turned 72 on February 18, 2022. She has yet to take her RMD for 2022 because she knew she could wait until her RBD, which is April 1, 2023. She just learned about the new RMD age delay and wonders whether the new rule applies to her because she turns 73 this year. Since the SECURE 2.0 Act provision is effective as of January 1, 2023, it doesn’t apply to individuals who turned 72 in 2022. So they, like Alicia, will have to take their RMD by April 1, 2023, if they have not done so already. They will continue to have a 2023 RMD to withdraw by December 31, 2023.

Note: Remember that some qualified retirement plans (such as 401(k) plans) allow participants who are not 5 percent owners to delay their first RMD year until the year they retire.

The SECURE 2.0 Act and the IRS have not specifically addressed how financial organizations should handle this RMD age increase for 2023. And as you know, you must provide RMD statements by January 31 to your Traditional and SIMPLE IRA owners.  But many organizations were well down the path to sending out these statements when the new law was passed.

So if you haven’t yet mailed out your RMD statements, try to pull the mailings for those born in 1951— who are turning 72 this year. For those who cannot do this or who have already sent the RMD statements, Ascensus advises sending a follow-up letter to these affected individuals, letting them know they no longer have an RMD due this year because of the new SECURE 2.0 Act.

Your IRA owners may still wish to take a distribution, even though an RMD is not due for them this year. They can always withdraw funds from their IRA. But what if they take a distribution this year, mistakenly thinking that it was their RMD? As long as IRA owners haven’t done a rollover with any of their IRAs in the last 12 months, they have 60 days to roll the assets back into their IRA. While IRA owners cannot roll back an RMD into their IRAs, this amount is technically not an RMD since an RMD is not due for them in 2023 because of the law change.

You’re not alone. With passage of the SECURE Act of 2019, the release in 2022 of proposed RMD regulations, and the passage of SECURE 2.0 Act of 2022, the retirement industry has experienced unprecedented changes in the past three years. We have heard your questions—and have come up with some of our own, as well. As our team analyzes these provisions and reaches out to our governmental sources for further interpretation, we anticipate that the IRS will continue to release additional guidance as many of these law changes are implemented.

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Answer # 2 #

An RMD is the amount you must withdraw from certain retirement accounts every year after a specific age (or retirement). Per the IRS, RMD rules apply to account holders and beneficiaries of 401(k)s, 403(b)s, traditional IRAs, SEP IRAs, profit-sharing plans and more.

These accounts are tax-advantaged, so RMDs are the government's way of finally getting its hands on those funds (and making sure you're not just sheltering them from taxes forever).

The change is part of the massive federal spending package President Joe Biden signed just before the new year. Several retirement provisions were included in a bill called the SECURE 2.0 Act, which, among other things, also requires employers to automatically enroll eligible workers in their 401(k) and 403(b) plans starting in 2025.

The RMD age tweak is actually an extension of a change from the first SECURE Act, which in 2019 raised the age for RMDs from 70 1/2 to 72. In addition to bumping up the age for 2023, the SECURE 2.0 Act also set up a future adjustment: In 2033, the RMD age will increase to 75.

Howard Gleckman, a senior fellow in the Urban-Brookings Tax Policy Center, wrote in a blog post that the changes are largely expected to benefit wealthy Americans.

"Most retirees already withdraw at least their required distribution amounts to pay for normal living costs," he added. "The big beneficiaries of delaying RMDs are the wealthy who do not need retirement savings to pay expenses or their heirs."

RMDs generally have to be taken by April 1 the year after you reach the age in question, with another withdrawal required by Dec. 31. The exact amount of an RMD depends on your own financial situation (and a bunch of math). The withdrawal typically gets included in your income for each year (unless you've already paid taxes on it), meaning it's subject to ordinary taxes at your regular income tax rate.

Failing to take an RMD comes with financial consequences. But the SECURE 2.0 Act changed the policy around that, too. The penalty for not taking an RMD went from a 50% tax on the amount you didn't withdraw to 25%. And it's just 10% if you make the proper withdrawal by the end of the second year you were supposed to.

All of this means that you can hang on to more of your retirement savings longer — if you can afford to, that is.

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Answer # 3 #

The Securing a Strong Retirement Act of 2022, dubbed SECURE 2.0 Act, will replace the current age for required minimum distributions (RMDs) with a sliding scale that would enable anybody who turns 74 after December 31, 2032 to delay RMDs until age 75. The bill has been passed by Congress in December of 2022. Here’s what you need to know.

A financial advisor can help you plan for RMDs and limit your tax burden when you start taking them. Find a trusted fiduciary advisor today.

The SECURE 2.0 Act was passed by Congress on December 23, 2022 and expands the Setting Every Community Up for Retirement Enhancement (SECURE) Act. This retirement legislation makes significant changes, among which is another age increase for RMDs.

In March of 2022, House Majority Leader Steny Hoyer (D-Md.) told colleagues that the full chamber would “take up legislation to help Americans save for retirement,” referencing the Securing a Strong Retirement Act of 2022. The legislation, which was first introduced in the House in May 2021, was subsequently marked up and approved by the Ways and Means Committee, but never voted on by the full chamber.

That 139-page bill included a variety of provisions designed to help expand coverage, increase retirement savings, preserve retirement income and simplify the rules that govern retirement plans. The bill aimed to build on the Setting Every Community Up for Retirement Expansion (SECURE) Act of 2019, which included a number of reforms to help Americans save for retirement. Among the most consequential changes of the original SECURE Act was amending the RMD age from 70.5 to 72 for people born on or after July 1, 1949. This change allowed retirees to keep their savings invested for an extra 18 months and defer taxes that much longer.

Now, retirement savers will get even more good news related to RMDs. These mandatory withdrawals will get pushed back even later in life under the Securing a Strong Retirement Act of 2022, which was initially introduced by U.S. Rep. Richard Neal, D-Mass.

As currently written, the Securing a Strong Retirement Act of 2022 establishes a sliding scale for RMDs. Instead of 72 serving as the default age when minimum distributions start, RMDs would begin according to the following schedule:

While Roth IRAs are not subject to RMDs, people with the following accounts are required to take them:

Calculating your RMD is relatively easy. First, look up the market value of your retirement account as of December 31 from the previous year. Then divide that value by the distribution period figure that corresponds with your age on the Uniform Lifetime Table, the actuarial table the IRS uses to calculate RMDs.

If the bill becomes law, it would mark the second time this year that retirement savers got good news related to RMDs.

In January, the IRS updated the Uniform Lifetime Table for the first time in 20 years to reflect more current life expectancies in the U.S. As a result of people living longer, the IRS adjusted the distribution period figures that individuals use to calculate their RMDs, making those withdrawals smaller than they were previously.

Under the previous version of the Uniform Lifetime Table, a 72-year-old with $1 million in his 401(k) would have been required to withdraw $39,062 ($1 million/25.6) during his first year of RMDs. However, the revised formula means the same retiree would be required to withdraw only $36,496 at age 72, allowing him to keep an extra $2,565 growing tax-deferred in his account.

It’s important to note: that the bill up for consideration in Congress would not impact the formula used to calculate RMDs. Instead, it would simply push back the age at which they are required. That means RMDs would not only be smaller than they were before but could also start later in a retiree’s life.

While the SECURE 2.0 Act aims to make a number of reforms and improvements to the country’s retirement system, one provision would have a profound effect on the way Americans save and withdraw their retirement funds. Under the proposed legislation, the age at which required minimum distributions (RMDs) must begin would go from age 72 to as high as 75 for some retirees. This change would presumably allow retirees to keep more of their savings invested for longer and defer taxes until even later in life.

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