How Does SECURE 2.0 Affect RMDs?

Readers are already asking questions on how SECURE 2.0, the brand new act that was signed into legislation on the finish of 2022, impacts RMDs (required minimal distributions) from IRA and different tax-deferred accounts.

The Altering Panorama

In 2022, below the SECURE Act (now known as SECURE 1.0), the RMD age was 72. SECURE 2.0, which was signed into legislation in late December 2022, modified the RMD age from 72 to 73. Earlier than Jan. 1, 2020, when SECURE 1.0 was adopted, the RMD age was 70 1/2.

Born in 1950? 72 or 73?

In the event you have been born in 1950, you have been age 72 in 2022 when the age 72 rule was in place. And, you have been (or will likely be) age 73 in 2023 when SECURE 2.0 modified the rule to age 73. Which legislation applies?

In the event you take a look at the statutory language, you’ll see the reply. I’m quoting Section 107 of SECURE 2.0, under “Applicable age”: “Within the case of a person who attains age 72 after December 31, 2022, and age 73 earlier than January 1, 2033, the relevant age is 73.”

In the event you have been born in 1950, you attained age 72 earlier than (not after) Dec. 31, 2022. So, it’s the 2022 rule for you: age 72, not age 73.

12 months of Start Issues

SECURE 2.0’s age 73 rule applies to these born in 1951 or later. These born in 1951 flip 73 in 2024; born in 1952 equals 73 in 2025; born in 1953 equals 73 in 2026; and so forth via 1959 in 2032, when one other SECURE 2.0 change comes into impact, elevating the age to 75 in 2033.

A Wrinkle: Does SECURE 2.0 Have an effect on the April 1 Rule for These Born in 1950?

Some 72-year-old IRA house owners waited to take their first RMDs till early 2023 earlier than their required starting dates (RBDs) of April 1.

The primary (and solely the primary) RMD will be delayed into the early a part of the next yr. The 2022 RMD have to be taken by April 1 of the next yr, on this case by April 1, 2023.

That calculation could be primarily based on 12/31/2021 IRA values, whether or not taken in 2022 or earlier than April 1, 2023. If the 2022 RMD have been delayed, the IRA proprietor would additionally must take his or her 2023 RMD by the top of 2023 primarily based on 12/31/2022 values.

What when you have been born in 1950 and haven’t taken your first RMD but? Are you able to depend on the age 73 RMD to attend a yr earlier than taking your first RMD?

That’s, would you be ready to decide on to modify to a 2023 RMD with a 12/31/2022 valuation date versus a 2022 RMD with a 12/31/2021 valuation date?

Returning to the language of SECURE 2.0, the reply could be no. Once more, the person has to achieve “age 72 after December 31, 2022” to profit from the age 73 relevant age. Once more, somebody born in 1950 would attain age 72 earlier than December 31, 2022.

Software program to Calculate RMDs

This conclusion is per RMD software program up to date for SECURE 2.0, reminiscent of Brentmark’s (brentmark.com).

Somebody born in 1950 has a primary RMD for the yr 2022, when the person turned 72, with a divisor of 27.4 for age 72 and an RBD of April 1, 2023.

The primary RMD for these born in 1951 is 2024, once they flip 73; the RBD is April 1, 2025; the divisor at age 73 is 26.5; the 12/31/2023 steadiness is used to calculate the 2024 RMD.

Brentmark software program is offered for buy ($199) to make use of if you wish to run stories for your self primarily based in your date of delivery and account worth. You too can assume a price of return and see how beneficiary data impacts the outcomes. (Conflicts disclosure: I subscribe to Brentmark software program. Additionally, the Brentmark web site posts hyperlinks to a few of my Forbes articles, for which I obtain no compensation from Brentmark.)

Free RMD Calculator

A free site for RMD calculations is obtainable by the U.S. Securities and Trade Fee (SEC).

You enter your account steadiness as of the top of final yr (Dec. 31) and your age at yr finish (how outdated you may be on the finish of the yr). The calculator will provide you with a withdrawal issue and a greenback quantity of the RMD. The withdrawal issue is predicated on Desk III: Uniform Lifetime Desk.

A special desk (not included within the website) applies in case your partner is 10 years youthful than you might be (Table II: Joint Life and Last Survivor Expectancy).

Caveat: Test With Your Tax Adviser

As at all times, you’ll want to verify together with your tax adviser earlier than taking any motion on RMDs. Even utilizing the SEC calculators can take you down the incorrect path until you already know the foundations that apply to your distinctive state of affairs.

Extra to Come

SECURE Act 2.0, which was a part of the Consolidated Appropriations Act, 2023 that was signed into law by President Biden on Dec. 29, 2022, has greater than 90 retirement plan provisions, a few of which take impact now in 2023, some in 2024 or later. Extra posts to return on these modifications . . .

Questions?

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