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Secure 2.0 Act: How Your RMDs Might Be Impacted

SmartAsset: How the Secure 2.0 Act Will Impact RMDs

The Securing a Strong Retirement Act of 2022, dubbed SECURE 2.0 Act, will replace the current age for required minimum distributions (RMDs) with a sliding scale that would enable anybody who turns 74 after December 31, 2032 to delay RMDs until age 75. The bill has been passed by Congress in December of 2022. Here’s what you need to know.

A financial advisor can help you plan for RMDs and limit your tax burden when you start taking them. Find a trusted fiduciary advisor today.

Securing a Strong Retirement Act of 2022

The SECURE 2.0 Act was passed by Congress on December 23, 2022 and expands the Setting Every Community Up for Retirement Enhancement (SECURE) Act. This retirement legislation makes significant changes, among which is another age increase for RMDs.

In March of 2022, House Majority Leader Steny Hoyer (D-Md.) told colleagues that the full chamber would “take up legislation to help Americans save for retirement,” referencing the Securing a Strong Retirement Act of 2022. The legislation, which was first introduced in the House in May 2021, was subsequently marked up and approved by the Ways and Means Committee, but never voted on by the full chamber.

That 139-page bill included a variety of provisions designed to help expand coverage, increase retirement savings, preserve retirement income and simplify the rules that govern retirement plans. The bill aimed to build on the Setting Every Community Up for Retirement Expansion (SECURE) Act of 2019, which included a number of reforms to help Americans save for retirement. Among the most consequential changes of the original SECURE Act was amending the RMD age from 70.5 to 72 for people born on or after July 1, 1949. This change allowed retirees to keep their savings invested for an extra 18 months and defer taxes that much longer.

Now, retirement savers will get even more good news related to RMDs. These mandatory withdrawals will get pushed back even later in life under the Securing a Strong Retirement Act of 2022, which was initially introduced by U.S. Rep. Richard Neal, D-Mass.

How Will Your RMDs Change Under the Bill

SmartAsset: How the Secure 2.0 Act Will Impact RMDs

As currently written, the Securing a Strong Retirement Act of 2022 establishes a sliding scale for RMDs. Instead of 72 serving as the default age when minimum distributions start, RMDs would begin according to the following schedule:

  • Age 73 for people who turn 72 after December 31, 2022
  • Age 75 for people who turn 74 after December 31, 2032

While Roth IRAs are not subject to RMDs, people with the following accounts are required to take them:

Calculating your RMD is relatively easy. First, look up the market value of your retirement account as of December 31 from the previous year. Then divide that value by the distribution period figure that corresponds with your age on the Uniform Lifetime Table, the actuarial table the IRS uses to calculate RMDs.

How Proposal Differs From New RMD Formula

SmartAsset: How the Secure 2.0 Act Will Impact RMDs

If the bill becomes law, it would mark the second time this year that retirement savers got good news related to RMDs.

In January, the IRS updated the Uniform Lifetime Table for the first time in 20 years to reflect more current life expectancies in the U.S. As a result of people living longer, the IRS adjusted the distribution period figures that individuals use to calculate their RMDs, making those withdrawals smaller than they were previously.

Under the previous version of the Uniform Lifetime Table, a 72-year-old with $1 million in his 401(k) would have been required to withdraw $39,062 ($1 million/25.6) during his first year of RMDs. However, the revised formula means the same retiree would be required to withdraw only $36,496 at age 72, allowing him to keep an extra $2,565 growing tax-deferred in his account.

It’s important to note: that the bill up for consideration in Congress would not impact the formula used to calculate RMDs. Instead, it would simply push back the age at which they are required. That means RMDs would not only be smaller than they were before but could also start later in a retiree’s life.

Bottom Line

While the SECURE 2.0 Act aims to make a number of reforms and improvements to the country’s retirement system, one provision would have a profound effect on the way Americans save and withdraw their retirement funds. Under the proposed legislation, the age at which required minimum distributions (RMDs) must begin would go from age 72 to as high as 75 for some retirees. This change would presumably allow retirees to keep more of their savings invested for longer and defer taxes until even later in life.

Tips for Managing Your RMDs

  • A financial advisor can help you determine your income needs in retirement and then create a withdrawal strategy that satisfies your annual RMD. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Taking out only what’s required may not be the best withdrawal strategy, depending on your needs. A study from JPMorgan Chase found that a withdrawal approach based solely on required minimum distributions (RMDs) not only fails to meet retirees’ annual income needs but can also leave money on the table at the end of their lives.
  • It may be helpful to get a jump start on planning for RMDs, even if you’re still years away from retiring. Use SmartAsset’s investment calculator to estimate how much in retirement savings you’ll have and then divide that number by 27.4 (the distribution period figure for age 72). But keep in mind that the Securing a Strong Retirement Act could mean RMDs would start even later.

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