Today’s question is, “how has SECURE 2.0 changed the rules for required minimum distributions?”.

If you have not heard, there were some pretty big legislations that were passed at the very end of December 2022 that affect retirement accounts. In this case, there are a few changes for required minimum distributions (RMDs).

Age You’re Required to Withdrawal

The first thing is age. It used to be that you were required at age 70 ½ to start taking money out of retirement accounts. In the last few years, that changed to start in the year in which you turn age 72. That has since been pushed to age 73. Down the road, starting in 2033, that age bumps up even more to age 75.

Penalties Decreased

Number two is the penalty. If you are supposed to take a required minimum distribution but fail to do so, there has been customarily a penalty of 50% of the amount that you should have taken. So, if you were supposed to take a RMD of $6,000 and you did not do it, the penalty would be $3,000. Ouch. Now, that penalty has not been eliminated, but at least it’s been reduced to 25% of the amount that you should have taken.

Roth 401(K) Balances

The other big change relates to whether you have Roth 401(K) balances inside of your 401(K). Customarily, when you have a 401(K), even if there’s a blend of pre-tax balances and Roth balances inside, the RMD was mathematically assessed on the entire account. So, that’s a little bit of a change. They’re actually going to carve that Roth 401(K) balance out of that account and mathematically, you do not have to take a required minimum distribution on that, which is kind of a good change.