In December 2022, President Biden signed the SECURE 2.0 Act of 2022 (SECURE 2.0) into law. SECURE 2.0 contains over 90 changes to help retirement savers and urges more employers to offer retirement plans. One of these changes increases the age at which you must begin taking Required Minimum Distributions (RMDs) from retirement plans.

Prior to SECURE 2.0, RMDs from 401(k) accounts, traditional IRAs, and similar retirement accounts were required beginning in the year you turn 72. SECURE 2.0 will eventually push the RMD age up to 75 in two phases.

Phase 1: RMDs will not start until age 73 for those that turn 72 after 12/31/2022.

Phase 2: RMDs will not start until age 75 for those that turn 74 after 12/31/2032.

This change provides a boost to seniors as they will be able to keep money in their tax-free retirement accounts just a little bit longer.

There are steep penalties from the IRS if you fail to take your RMDs, but SECURE 2.0 gives taxpayers some relief. SECURE 2.0 reduces the penalty for failure to take an RMD from 50% of the distribution shortfall down to 25%, and further down to 10% if the distribution shortfall is corrected by the end of the second year following the year it was due.

SECURE 2.0 also eliminates the need to rollover funds from a Roth 401(k) to a Roth IRA to avoid RMD rules. Starting in 2024, Roth 401(k) accounts will not be subject to RMD rules before the account holder dies.

Please consult with your tax professional at Ketel Thorstenson about this or other tax matters because each situation is different. Do not navigate the difficult and ever-changing tax codes and legislation on your own. Ketel Thorstenson CPAs and tax professionals receive advanced training and continuing education all year long to keep our services on the forefront of the tax industry. Call us today for guidance on tax planning, tax return preparation, and tax legislation.