SECURE Act 2.0 Changes Required Minimum Distribution Rules

Planning for retirement can already be daunting. IRAs, 401(k)s, 403(b)s, and TSPs can sound like an alphabet soup of hoops to jump through and requirements to know. On top of general planning for retirement, Congress occasionally will enact legislation that changes the taxation scheme for various retirement accounts and tools. While these changes can often be beneficial, knowing how best to navigate a new legislative environment can be half of the battle to planning for retirement in a savvy way.

For example, the SECURE 2.0 Act will change the required minimum distribution rules. Required minimum distribution is the amount of money a person must begin withdrawing from certain types of employer-sponsored retirement plans or traditional IRAs at retirement age. These required distributions can impact how you may plan for retirement, including avoiding hefty tax penalties or certain types of accounts. Talking to an attorney well-versed in estate and retirement planning can help you understand how these rules change and how they may or may not impact your plans. Furthermore, each of these rules has different implementation and start dates, and the impact of these changes can change depending on your birth year. Understanding these nuances is key to taking full advantage of the changes, which were designed to make retirement saving easier for people in the United States.

SECURE 2.0’s Changes

Under SECURE 2.0, the required age for federal employees to begin taking their required minimum distributions is now later than it was under SECURE 1.0 and before the passage of SECURE 1.0. The age has generally moved from 70.5 to 73 in 2023. In 2033, the age will be 75.

In addition to increasing the required beginning date, the SECURE Act 2.0 has included relief on penalties for not taking these required distributions. Under the new version of the act, the penalty for failing to take a required minimum distribution has been halved from a 50% excise tax to 25%. In addition, the penalty is just 10% if the required minimum distribution in question is taken by the end of the second year after the year it was due. Otherwise, an individual can avoid a penalty if the failure to take the RMD was due to a reasonable error, such as an illness.

Finally, under current rules, a Roth IRA is the only type of retirement account that is not required to take required minimum distributions. However, with the new Act, required minimum distributions will no longer be applied to Roth 401(k)s starting in 2024.

Speak with a Houston Estate Planning Attorney

Retirement accounts can be difficult to utilize to their full potential without professional guidance. If you or your loved ones would like to avoid tricky taxation and distribution issues while maximizing your retirement funds, contact an estate planning attorney today. The Houston estate planning attorneys at McCulloch Miller, PLLC, are skilled in a wide range of estate planning and can help you craft a will that avoids mysteries and litigation. Call a member of our team today at (713) 903-7879.


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