New Year, New Me, New RMD | Rea CPA | Investment Partners

New Year, New Me, New RMD

Retirement Enhancement Act 2.0 | Rea CPA | INVP

The first month of the year always seems to be a blur. I am sure it was just as much for you as it was for me. Filled with all kinds of goal setting, resolution chasing and a little bit of Christmas light tear-down as well (after some persuasion and motivation from the wife to do so, of course). The first month of the year seems to always be a dose of reality after the holiday season as things get back to normal and now that we are all back in the swing, that means tax season is kicking into gear.

As you might have heard or seen, the end of 2022 brought with it the passing of a major piece of legislation that will impact taxes in the very near future, the Secure (Setting Every Community Up for Retirement Enhancement) Act 2.0, which passed on December 29. The act, like its predecessor, expands on many rules that directly affect future retirement strategies, tax implications, and contribution limits, among other things. While the act passed in the end of 2022, many provisions within the act will not take effect until 2024 and beyond. One provision that may have a more current impact than others though are the changes made to the required minimum distribution (RMD) rules within the act.

An RMD, simply put, is the required minimum amount of money that the IRS demands be taken from any kind of qualified retirement plan (IRA, 401k, SEP, Simple, etc.) annually after a certain age. RMDs were introduced as a response to the changes in retirement savings and planning as a result of ERISA passing in the mid 1970s. A combination of a few tax bills, most importantly the Tax Reform Act of 1986, developed RMDs to require an annual distribution from individual’s qualified retirement accounts as taxable income. This way, the IRS was able to prevent individuals from avoiding paying deferred tax liabilities owed within those plans from years of contributions. I could dive deep into the specific iterations of each RMD update from decades past, but we will get to the current day and the Secure 2.0 update.

Let’s take a look at where we stand as of now, before 2.0 takes effect. According to the original Secure Act, at age 72, distributions had to begin from accounts as of April 1, after you turn 72. If someone were to fail to take their yearly RMD, an excise tax of 50 percent of the RMD that should have been taken will be added on as a penalty once they do take it, and unlike personal Roth accounts, RMDs also had to come out of Roth accounts within employer plans just like traditional employer plans.

The new and improved Secure Act 2.0 has made changes to each of the above rules.

  1. The act now states that for individuals who turn 72 after December 31, 2022, and age 73 before January 1, 2033, the new RMD age will be 73. Once 2033 comes around, that age is set to change up to 75 for those turning 74 on or after January 1, 2033.
  2. 2.0 has also decreased the excise tax penalty for failure to take a distribution. The old rate of 50 percent has been reduced, starting for 2023, to 25 percent as the penalty. A further reduction to 10 percent will be used if the individual corrects the mistake by the end of the second taxable year following, withdraws out the amount of RMD previously not distributed, and submits a corrected tax return.
  3. Starting in 2024, RMDs will no longer be required from Roth accounts within employer plans.

While RMDs are a major component of the changes brought forth in Secure 2.0, they are not the only thing changing within the act. From contribution limits, to employer enrollment rules, conversions, and withdrawal provisions, the Act will have a major impact on the landscape of individual finance moving forward.  We here at INVP look forward to being an asset and helping in any way we can regarding 2.0. Reach out to us here at Investment Partners with any questions you may have moving forward into the future!

By: Max W. Feller, Investment Partners, LTD

419 W. High Ave

New Philadelphia, OH 44663


Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Investment Partners LTD is a Registered Investment Adviser. Additional advisory services offered by Investment Partners LTD are separate and unrelated to Commonwealth. Fixed insurance products and services offered through Investment Partners, LTD or CES Insurance Agency