For decades, retirees in the United States have followed strict rules around Required Minimum Distributions (RMDs)—mandatory withdrawals from tax-deferred retirement accounts such as traditional IRAs, 401(k)s, and 403(b)s. These withdrawals ensure that the government eventually collects taxes on money that has grown tax-free over a worker’s lifetime.
The Secure 2.0 Act, signed into law in December 2022, introduced some of the most significant updates to RMD rules in recent history. These changes give retirees more flexibility, delay the start of required withdrawals, and adjust penalties for mistakes. Understanding these rules is crucial for retirees and those nearing retirement, as RMDs can have a major impact on taxes, income planning, and overall financial security.
Table of Contents
What Are Required Minimum Distributions (RMDs)?
RMDs are the minimum amounts retirees must withdraw each year from tax-deferred retirement accounts once they reach a certain age.
- Accounts subject to RMDs: Traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, 403(b)s, and other employer-sponsored plans.
- Accounts not subject to RMDs: Roth IRAs (during the owner’s lifetime), though inherited Roth IRAs may require distributions.
The IRS calculates RMDs using the retiree’s age and account balance. Skipping withdrawals or taking too little can trigger steep penalties.
RMD Rules Before Secure 2.0
- Starting Age: Prior to 2020, RMDs began at age 70½.
- The Secure Act of 2019: Raised the starting age to 72.
- Penalties: Failure to take an RMD resulted in a 50% excise tax on the amount not withdrawn.
These rules often forced retirees to draw down accounts earlier than desired, potentially leading to higher taxes and reduced flexibility.
RMD Changes Under Secure 2.0
The Secure 2.0 Act introduced several major changes:
1. Higher Starting Age
- 2023: RMDs began at age 73.
- 2033 and beyond: RMDs will begin at age 75.
This allows retirees to keep money growing tax-deferred for longer, benefiting those who don’t need immediate withdrawals for living expenses.
2. Reduced Penalties
- The penalty for failing to take an RMD dropped from 50% to 25%.
- If corrected in a timely manner, the penalty can be further reduced to 10%.
This change provides relief for retirees who make honest mistakes.
3. Roth Employer Plans
Starting in 2024, RMDs are no longer required for Roth 401(k) and Roth 403(b) accounts during the account holder’s lifetime, aligning them with Roth IRAs.
4. Qualified Charitable Distributions (QCDs) Expanded
- QCDs allow retirees age 70½ or older to transfer up to $100,000 annually directly from IRAs to charities, satisfying RMD requirements while avoiding taxable income.
- Secure 2.0 added a new provision allowing a one-time $50,000 QCD to certain charitable trusts or annuities.
5. Other Technical Adjustments
- Rules for surviving spouses inheriting retirement accounts became more flexible.
- Employer plans are encouraged to provide easier access to RMD guidance.
Impact of Changes on Retirees
Greater Flexibility in Retirement Planning
By delaying RMDs to 73 (and eventually 75), retirees have more time to:
- Continue tax-deferred growth.
- Convert portions of traditional IRAs to Roth IRAs at favorable tax rates.
- Manage Social Security claiming strategies without simultaneous RMD income.
Tax Planning Opportunities
Retirees in lower tax brackets before RMD age can use this window to perform Roth conversions or take strategic withdrawals at lower rates.
Relief from Harsh Penalties
The reduced penalty provides peace of mind, especially for retirees juggling multiple accounts or complicated withdrawal schedules.
Example Scenario
- Before Secure 2.0: A retiree turning 72 in 2023 would have been required to start RMDs immediately.
- After Secure 2.0: That retiree now begins RMDs at 73, giving them one more year of tax-deferred growth and potential Roth conversions.
- Future Generations: A retiree turning 72 in 2034 won’t need to take RMDs until age 75.
This three-year deferral could mean tens of thousands in additional tax-free growth for well-funded accounts.
Who Benefits Most from the Changes?
- Wealthier Retirees: Those who don’t rely on retirement accounts for income gain more flexibility to optimize taxes and estate planning.
- Charitably Inclined Seniors: Expanded QCD options allow retirees to support causes they care about while reducing taxable income.
- Dual-Income Households: Couples can coordinate withdrawals to minimize joint tax burdens.
However, retirees who depend on account withdrawals for daily expenses will see less direct impact, as they must take funds regardless of RMD rules.
Potential Drawbacks
- Higher Future Taxes: Delaying withdrawals may push retirees into higher tax brackets later if large balances must be withdrawn all at once.
- Medicare Premium Increases: Larger distributions at older ages could trigger higher Medicare Part B and D premiums (Income-Related Monthly Adjustment Amounts, or IRMAA).
- Estate Planning Complexity: Larger untapped accounts could create bigger tax burdens for heirs under the 10-year distribution rule for inherited IRAs.
The Secure 2.0 Act’s changes to RMD rules mark a significant shift in retirement planning. By raising the starting age, reducing penalties, and eliminating RMDs for Roth employer accounts, retirees now have greater control over when and how they draw down savings.
Still, the new rules require thoughtful planning. Retirees should weigh the benefits of tax-deferred growth against the risk of larger withdrawals later, explore Roth conversion opportunities, and consider charitable strategies like QCDs.
Ultimately, these changes highlight the importance of personalized retirement income planning in a landscape where rules—and opportunities—continue to evolve.
Frequently Asked Questions (FAQs)
Q1. What is the new age to start RMDs under Secure 2.0?
RMDs now begin at age 73, and starting in 2033, the age will increase to 75.
Q2. Do Roth IRAs or Roth 401(k)s require RMDs?
Roth IRAs never required RMDs. Starting in 2024, Roth 401(k)s and Roth 403(b)s also no longer require RMDs during the account holder’s lifetime.
Q3. What happens if I miss my RMD?
The penalty is now 25% of the amount not withdrawn, reduced to 10% if corrected promptly.
Q4. Can charitable donations count toward RMDs?
Yes. Qualified Charitable Distributions (QCDs) allow IRA holders to donate directly to charities, satisfying RMD requirements without incurring taxable income.
Q5. Does delaying RMDs always reduce taxes?
Not necessarily. Larger withdrawals later could push retirees into higher tax brackets or increase Medicare premiums. Strategic planning is key.