The Rules are Changing (Again!) for Required Minimum Distributions
For many years, when a person turned 70 ½, they were told that it was now time to begin taking distribution from their retirement account. Upon passage of the Secure Act in 2019, the age to begin taking required minimum distributions was changed to age 72.
Now, 3 years later, the required minimum distribution age is changing again. Starting in 2023, only those who are 73 or older will be required to take taxable distributions from their IRA, 401(k) or other retirement account. In addition, in 10 years (2033), the age is going to move again to age 75. That is a lot of changes to one simple rule in a short period of time!
Required Minimum Distributions (RMDs) to Begin at age 73
A big headline from the SECURE Act 2.0 is a shift to push back the onset of RMDs from age 72 to age 73. It’s not a huge change, but any RMD relief is welcome news for those who don’t want to take retirement distributions and will only take them because they are forced to do so.
Individuals reaching age 73 will still be able to delay their first RMD until April 1 of the following year. However, if the first RMD is not taken in the year an individual turns 73, but is instead taken the following year (by April 1), a second RMD will also still need to be distributed that year (the year the individual turns 74) by the end of the year. But either way, the first age-73 RMD will always be calculated using the age 73 life expectancy factor.
Notably, this change to the new required beginning date for RMDs only applies to those individuals who turn 73 in 2023 or later. In other words:
For individuals born before 12/31/1950, they will continue RMDs as they did in 2022.
For individuals born after 1/1/1951, they will begin RMDs in the year they turn age 73.
Qualified Charitable Distributions (QCDs) Still allowed at age 70 1/2
The SECURE Act made no changes to the date at which individuals may begin to use their IRAs (and inherited IRAs) to make Qualified Charitable Distributions (QCDs). Thus, even though an individual turning 70 ½ in 2023 will not have to take an RMD for 2023, they may still use their IRA to make a QCD. Generally, a QCD can be made for up to $100,000 for the year, after a taxpayer actually turns age 70 ½.
Beginning in the year an individual turns 73, any amounts given to charity via a QCD will reduce the then-necessary RMD as well. While in the prior 2+ years, it will simply allow the pre-tax IRA to be used for charitable contributions directly on a pre-tax basis.
If you have any questions about how your retirement plan or tax plan is affected by the changes in the required minimum distributions, let us know.