3 Big RMD Rule Changes – Don’t Get Caught Off Guard! (Required Minimum Distribution (RMD))

Recent legislative updates have significantly changed the rules governing Required Minimum Distributions (RMDs) from retirement accounts. These changes affect when and how retirees must withdraw funds, impacting retirement planning and tax strategies.

If you’re approaching retirement or managing retirement accounts, understanding these RMD rule changes is crucial to avoiding penalties and maximizing your savings.

3 Big RMD Rule Changes

Official IRS RMD Rules

The recent RMD rule changes offer greater flexibility and financial advantages for retirees. The higher RMD age, elimination of Roth 401(k) RMDs, and lower penalties for missed withdrawals provide opportunities to strategically manage taxes and retirement income.

Next Steps:

1. Review your RMD schedule based on the new age limits.
2. Consider Roth conversions for tax-free retirement growth.
3. Avoid penalties by setting up automatic withdrawals.

For official IRS guidance, visit IRS RMD Rules.

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Increased Starting Age for 3 Big RMD Rule Changes

The SECURE 2.0 Act has changed the age at which you must start withdrawing funds from tax-deferred retirement accounts like 401(k)s and traditional IRAs.

New RMD Age Requirements

1. If you turn 73 between 2023 and 2032: Your RMDs must begin by April 1 of the following year.
2. If you turn 75 in 2033 or later: You don’t have to take RMDs until age 75.

Example:

1. John, age 72 in 2024, doesn’t have to take an RMD until April 1, 2026.
2. Sarah, age 74 in 2034, will start RMDs at age 75 in 2035.

Why it Matters:

1. More time to let investments grow tax-deferred.
2. Opportunity for Roth conversions before RMDs start.

Action Plan

1. Check your birth year and new RMD start date.
2. Work with a financial advisor to optimize your retirement withdrawal strategy.

3 Big RMD Rule Changes: No RMDs for Roth 401(k) Accounts

Before 2024, Roth 401(k)s were subject to RMDs, unlike Roth IRAs. The SECURE 2.0 Act eliminates RMDs for Roth 401(k) accounts, making them function like Roth IRAs.

Key Benefits

1. No forced withdrawals, allowing tax-free growth indefinitely.
2. More flexibility in estate planning—heirs can inherit and stretch withdrawals.

Example:

1. Mike, age 74, has $500,000 in a Roth 401(k). Before 2024, he would have had to withdraw RMDs, but now, his savings continue growing tax-free.

Action Plan

Consider rolling over a traditional 401(k) to a Roth 401(k).
If nearing retirement, convert pre-tax savings into a Roth for tax-free withdrawals later.

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3 Big RMD Rule Changes: Lower Penalties for Missed RMDs

Previously, missing an RMD resulted in a 50% penalty on the required amount. The new rule reduces this penalty to 25%, and if corrected within two years, it drops to 10%.

Example:

1. Emma forgets to take a $10,000 RMD in 2024.
   • Old rule: $5,000 penalty (50%).
   • New rule: $2,500 penalty (25%).
   • If corrected within two years: $1,000 penalty (10%).

Why it Matters:

1. The lower penalty reduces the financial burden of honest mistakes.
2. Prompt correction further minimizes tax liabilities.

Action Plan

Set up automatic RMD withdrawals from your brokerage or IRA account.
Work with a tax professional if you miss an RMD to fix it within two years.

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3 Big RMD Rule Changes (FAQs)