Retirement savings can make a big difference in how enjoyable your post-work years will be.
If you have tax-deferred retirement accounts, those savings also present new tax responsibilities once you reach a certain age.
Some money in a traditional IRA that's been out of the Internal Revenue Service's reach for years must be taken out as a required minimum distribution, or RMD. Uncle Sam also gets an RMD cut from traditional employer-sponsored retirement plans, including profit-sharing plans, 401(k) plans, 403(b) plans, and 457(b) plans.
And while already-taxed Roth contributions usually escape RMDs, designated Roth accounts in a 401(k) or 403(b) are subject to the RMD rules for 2023. Beginning in 2024, designated Roth accounts will not be subject to the RMD rules while the account owner is still alive.
Effective dates: The tax years in connection with designated Roth workplace plans is a good introduction to the RMD effective dates that were changed as part of the Setting Every Community Up for Retirement Enhancement (SECURE) Acts. The 2.0 version was signed into law on Dec. 29, 2022. The original SECURE Act was enacted in late 2019.
RMDs were around for decades before both SECURE Acts. The pre-SECURE version required owners of certain tax-deferred retirement accounts to start taking out specific age-based amounts when they turned 70½.
The SECURE changes got rid of that silly half-birthday calculation by letting people wait a bit longer before RMD rules kicked in.
The initial SECURE law extended the RMD age to 72 from 70½. SECURE 2.0 pushed the RMD age even later, with 73 being the effective withdrawal age in 2023 for individuals born in 1951 or later. For advance planners, the RMD age goes to 75 in 2033.
The box below has some key SECURE Act numbers.
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SECURE RMDs By the Numbers 72 is your RMD trigger age, set by the original SECURE 1.0 Act, if you celebrated that birthday in 2022. You must continue your RMDs for all subsequent years. July 1, 1949, through 1950 is the birthdate range to which the age 72 RMD trigger applies. 73 is the age at which you must take an RMD for the 2023 tax year. 1951 through 1959 is the birthdate range to which the age 73 RMD trigger applies. Dec. 31, 2023, technically is the deadline for your tax year 2023 RMD. That falls on a Sunday, which takes us to our next number. Dec. 29, 2023, is the last business day of 2023. Even though the technical RMD deadline is Dec. 31, you need to contact your retirement account administrator by Friday, Dec. 29, at the very latest (but preferably before then) to ensure your mandatory withdrawal is made on time. April 1, 2024, is the special distribution deadline if your first RMD is for 2023. This special extended deadline to the next April 1 is available not only for 2023, but for all who face their first RMDs. For example, if your first age 73 RMD is in 2024, you can postpone it until April 1, 2025. Dec. 31, 2024, is the deadline for your next RMD if you took your first for the 2023 tax year. But if you postponed your first RMD this year to next April 1 (or earlier in 2024), you'll take two RMDs in this one year. 7 ordinary tax rates, from 10% to 37%, apply to RMDs. Run the numbers before delaying your first RMD, as taking two distributions in one year could push you into a higher tax bracket. 75 is the age for first RMDs beginning in 2033. 1960 or later is the birthdate range to which the age 75 RMD trigger applies. 25% is the penalty the IRS assesses for missing an RMD or failing to take the appropriate distribution amount. That's steep, but it's just half of the original 50% RMD penalty. |
RMD calculation help: Your RMD is calculated based on the account(s)' value at the end of the prior year divided by your life expectancy factor.
The IRS supplies the life expectancy number in three different tables in Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs). Most use the agency's Uniform Lifetime Table.
You can use IRS' online worksheets to calculate your RMD and payout periods. The investment company Fidelity also has an online RMD calculator.
The IRS has more on other special RMD situations, such as inherited IRAs and retirement accounts, and the special treatment given RMDs during the height of the COVID-19 pandemic in its RMD reminder announcement.
You also can check out the retirement plan and IRA RMDs frequently asked questions at IRS.gov.
Finally, check out my post from last December for some last-minute tips for those facing Dec. 31 retirement plan RMDs.
You also might find these other retirement tax items of interest:
- 7 tax breaks for older taxpayers
- The tax-saving ABCs of RMDs and QCDs
- RMD age increase and wrong notices create tax confusion for some retirement account owners
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