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Regarding mandatory withdrawals from retirement accounts, Secure 20 modifies three important guidelines

President Joe Biden signed a $1.7 trillion legislative package on Dec. 29, 2022 that has several updates for retirement savers.

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1. Raising the RMD age to 73 (and eventually 75)

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Safeguard Wealth Management

Currently, savers have to start taking RMDs at age 72. The withdrawal amount is based on a calculation dictated by factors like account value and longevity.

The new law raises the RMD starting age in two tranches: to 73, starting in 2023, and to 75, starting in 2033.

In other words, individuals who turn 73 this year must take their first distribution no later than April 1, 2024. The distribution for subsequent years would need to be made by Dec. 31 of that year.

Note that people who delay their first withdrawal until early 2024 would need to take two distributions next year — one for 2023 and one for 2024.

Retirement plan changes in the omnibus spending bill

Delaying the RMD starting age "overwhelmingly" benefits the wealthy, said Jeffrey Levine, a certified financial planner and certified public accountant based in St. Louis. Such savers are disproportionately the ones who can afford not to tap their retirement accounts to fund their lifestyles.

Yet deferring the RMD age can benefit many savers from a financial-planning perspective, too.

For example, it may help temporarily reduce premiums for Medicare Part B and D, Levine said. Medicare premiums are tied to income, and distributions from pretax retirement accounts raise a taxpayer's income; delaying that bump to annual income can therefore keep premiums lower for longer.

2. Eliminating RMDs from a Roth 401(k)

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James Conole, CFPĀ®

Starting in 2024, investors in employer retirement plans likes Roth 401(k) accounts will no longer have to take RMDs.

This change aligns Roth 401(k) with Roth IRAs, which don't require distributions during one's lifetime.

That discrepancy was a big reason for Roth 401(k) owners to roll money out of their workplace retirement plan to a Roth IRA — thereby avoiding RMDs and allowing retirement funds to continue growing tax-free.

However, there are other considerations relative to keeping your money in a 401(k) or rolling it over. For example, investment options, fees and service level may be better in one versus the other, Levine said, depending on the quality of your workplace retirement plan.

And there may be more Roth assets in workplace plans going forward due to another change allowing employers to pay a matching contribution to a Roth versus pretax account.

3. Reducing RMD tax penalties

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Financial Fast Lane

Withdrawal rules can be complicated — and making a mistake can be expensive.

The IRS assesses a tax penalty on account owners who fail to withdraw the full amount of their RMD or who don't take a distribution by the annual deadline.

The new law reduces the tax penalty to 25% — from 50% — on the RMD amount that wasn't withdrawn. If a taxpayer corrects their mistake in a timely fashion, the penalty falls further, to 10%.

The IRS can waive penalties if savers can demonstrate the shortfall was "due to reasonable error and that reasonable steps are being taken" to remedy it, according to the agency.

While many people miss their required withdrawals each year, this particular rule change may not have a large impact since the IRS often waives penalties in such situations, Levine said. However, it could prove especially useful if the IRS were to crack down, he added.

To qualify for relief, taxpayers must file Form 5329 and attach a letter of explanation. 


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