What Are the SECURE 2.0 RMD Age Changes?

A Required Minimum Distribution (RMD) is the amount of money that must be withdrawn from certain retirement accounts annually. These withdrawals are mandated by the federal government to ensure that taxes are eventually paid on the tax-deferred savings held within these accounts. The SECURE 2.0 Act of 2022 introduced updates to retirement savings rules, directly affecting the timeline for these mandatory withdrawals by altering the age at which account holders must begin.

The New RMD Starting Ages

The SECURE 2.0 Act adjusted the age for beginning RMDs, establishing a phased-in approach based on an individual’s birth year. For individuals born between 1951 and 1959, the age to begin taking RMDs is now 73. A person born in 1951, for instance, has their first RMD due for the 2024 tax year, with a deadline of April 1, 2025, to take that initial distribution. Subsequent RMDs must be taken by December 31 of each following year.

Those born in 1960 or later will not be required to start their RMDs until they reach age 75. This provides an even longer period for account balances to grow before withdrawals are mandatory. Individuals born in 1950 or earlier are not affected by these changes and should have already begun their RMDs under prior rules.

These regulations apply to tax-deferred retirement accounts, including traditional IRAs, SEP IRAs, SIMPLE IRAs, and employer-sponsored plans like 401(k)s and 403(b)s. The long-standing “still working” exception continues to apply to employer-sponsored plans, but not to IRAs. This exception allows an individual to delay RMDs from their current employer’s 401(k) plan past the RMD age, as long as they are still employed and are not a 5% owner of the business.

Correcting Unnecessary 2023 Distributions

The change in the RMD age created confusion for individuals born in 1951. Under the previous law, their first RMD was due in 2023, but SECURE 2.0 pushed their start date to age 73. This timing shift meant that any distributions taken in 2023 by this group were not actually required. The IRS provided a special rollover option to correct these unnecessary withdrawals, but that relief period has since passed.

Reduced Penalties for Missed RMDs

The SECURE 2.0 Act substantially reduced the penalty for failing to take an RMD. The excise tax for a missed RMD was lowered from 50% to 25% for distributions required for 2023 and beyond. This provides relief for account holders who fail to take their full RMD by the annual December 31 deadline.

Furthermore, the penalty can be reduced to 10% if the account holder withdraws the required amount and files a corrected tax return in a timely manner. To secure this lower penalty, the individual must take the makeup withdrawal and submit Form 5329. This is generally done by the end of the second year after the year the RMD was missed.

Strategic Planning with a Later RMD Start

The delay in the RMD start age to 73 or 75 extends the tax-deferred growth period for assets in traditional retirement accounts. With more time before withdrawals are mandated, investments can compound without the drag of annual taxation.

This delay also creates a window for tax management, particularly through Roth conversions. The years between retirement and the new RMD start date can be a period of lower income for many individuals. This creates an opportunity to convert funds from a traditional IRA or 401(k) to a Roth account at a more favorable tax rate.

Since Roth IRAs do not have RMD requirements for the original owner, converting assets reduces the balance in the traditional account that is subject to future RMD calculations. This strategy can lower the amount of future mandatory withdrawals and, consequently, reduce an individual’s taxable income in their later retirement years.