What Are the RMD Changes from the SECURE 2.0 Act?

Required Minimum Distributions, or RMDs, are annual withdrawals individuals must take from most retirement accounts after reaching a certain age. These rules ensure the government can eventually collect tax revenue from tax-deferred savings vehicles. The SECURE 2.0 Act, signed into law in late 2022, introduced several modifications to the RMD framework, which began taking effect in 2023. These adjustments alter when distributions must start, the consequences for missing them, and how certain accounts are treated.

Increase in the RMD Starting Age

One of the most prominent changes from the SECURE 2.0 Act is the increase in the RMD starting age. Effective January 1, 2023, the age was raised from 72 to 73. This change provides individuals with an additional year for their retirement funds to grow tax-deferred before withdrawals become mandatory.

The impact of this age adjustment depends on an individual’s birth year. Those born in 1950 or earlier must continue taking distributions as scheduled under previous rules. The new law primarily affects those born in 1951; their first RMD is not due until 2024, with a deadline of April 1, 2025, for that initial withdrawal.

For individuals born between 1951 and 1959, the RMD starting age is 73. The legislation also includes a future increase. Beginning on January 1, 2033, the RMD age will rise again to 75. This change will apply to individuals born in 1960 or later.

Changes to Penalties for Missed RMDs

The SECURE 2.0 Act also altered the financial consequences for failing to take a required minimum distribution. Previously, the penalty was a 50% excise tax on the amount that should have been withdrawn but was not. This penalty often created financial hardship for individuals who made an error.

Effective for 2023 and later years, the excise tax for a missed RMD is reduced from 50% to 25%. The law creates an incentive for prompt correction of the oversight. If an individual withdraws the missed RMD amount and files a corrected tax return in a timely fashion, the penalty is further reduced to 10%.

This correction must be made within a specific timeframe, called the “correction window,” which ends on the last day of the second year following the year the RMD was missed. To report and pay the tax, the account owner must file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with their federal tax return.

Roth 401(k) RMD Elimination

A notable inconsistency in prior retirement account rules involved the treatment of Roth assets. While Roth IRAs have never required the original owner to take lifetime RMDs, the same was not true for Roth accounts within employer-sponsored plans, such as Roth 401(k)s or 403(b)s. These accounts were subject to the same RMD rules as their traditional, pre-tax counterparts.

The SECURE 2.0 Act rectifies this discrepancy by eliminating lifetime RMDs for Roth accounts held in employer-sponsored retirement plans. This change aligns the rules for Roth 401(k)s with those for Roth IRAs, allowing assets in these accounts to remain invested for the owner’s entire life without mandatory withdrawals.

The elimination of RMDs from employer-sponsored Roth accounts applies to taxable years beginning after December 31, 2023. This means that for the 2023 tax year, individuals who reached their RMD age were still required to take a distribution from their Roth 401(k). Starting in 2024, these RMDs are no longer necessary for the original account owner.

Key Updates for Spouses and Charitable Giving

The SECURE 2.0 Act also introduced targeted updates affecting surviving spouses and individuals interested in charitable giving. For surviving spouses who are the sole beneficiary of a deceased partner’s retirement account, a new option became available starting in 2024. A surviving spouse can now elect to be treated as the deceased employee for RMD purposes. This election can allow the spouse to delay taking RMDs until the deceased spouse would have reached the required age, which may be a later date than their own RMD age.

Another change involves Qualified Charitable Distributions (QCDs), which allow individuals to donate directly from their IRA to a qualified charity. The law now permits a one-time, non-recurring QCD of up to $50,000 to be made to a split-interest entity, such as a charitable remainder unitrust or charitable remainder annuity trust. This special distribution counts toward the annual RMD, offering a new avenue for philanthropic planning. Furthermore, the annual QCD limit, which has long been capped at $100,000, will be indexed for inflation beginning in 2024, allowing the potential for larger tax-free charitable gifts from IRAs in the future.