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SECURE 2.0 Raises RMD Age to 73

December 30, 2022

Attention retirees…Congress has passed SECURE 2.0 which introduces several changes to retirement plans, namely raising the age for Required Minimum Distributions from 72 to 73. Here’s what you need to know.

The Securing a Strong Retirement Act, H.R. 2954, otherwise known as SECURE 2.0 has passed. What does this mean for RMDs? We explore here.

What is SECURE 2.0?

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The Securing a Strong Retirement Act, H.R. 2954, otherwise known as SECURE 2.0 expands and increases retirement savings and simplifies some existing rules.

What is an RMD?

Your required minimum distribution is the minimum amount you must withdraw from your account each year. This applies to Individual Retirement Accounts (IRAs), SIMPLE IRAs, and SEP IRAs. Roth IRAs do not require withdrawals until after the death of the account owner.

More about the RMD age increase

Beginning January 1, 2023, SECURE 2.0 increases the age for Required Minimum Distributions (RMDs) to 73. The age increases to 75 in 2033.

This means you have as late as April 1 of the year following the year you turn 73 to take your first RMD. For each year thereafter, the RMD must be made annually by December 31st. If you delay your first RMD until the following year [and prior to April 1], you will need to take two RMDs in that year.

The Act also reduces the penalty for not taking RMDs from 50% down to 25%. If the failure is corrected within 2 years, the penalty drops to 10%.

Does this impact catch-up contributions to IRAs?

Under the current law, catch-up contributions to IRAs, for participants aged 50 and older is $1,000. This amount has been the same for many years, as it was not previously subject to increases for inflation. The Act adjusts IRA catch-up amounts annually for inflation for tax years beginning in 2023.

The Act also requires catch-up contributions to all types of retirement plans be subject to Roth (i.e., after-tax) rules.

What other provisions does SECURE 2.0 introduce?

  • Employers will now be able to give employees the option to put matching contributions into the Roth IRA “bucket’ in their employer sponsored plan such as a 401k,403b and SEP IRA.
  • Section 403(b) plans can now participate in multiple-employer plans
  • Widened eligibility for 401(k) participation for employees who serve at least 500 hours for two years (decreased from three years)
  • Participants in SIMPLE and SEP IRA plans will be able to make Roth contributions to their accounts
  • Increasing catch-up amounts for 401k and SIMPLE plans, based on a two -tier system. First for aged 50 and older and for tax years after 2024, a second level with higher amounts for participants aged 60 – 63.

Questions on SECURE 2.0? We can help.

Visit our SECURE Act 2.0 Knowledge Center for more information on retirement changes that could impact you and your business.

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