Secure 2.0 Act: Required minimum distribution age increases for IRAs

Retirees may be able to invest in their retirement for a longer period of time, thanks to the Secure 2.0 Act (iStock)

Americans contributing toward individual retirement accounts (IRAs) may see their investments grow for a longer time before they need to start making government-mandated withdrawals. 

That’s because the Secure 2.0 Act raised the required minimum distribution (RMD) age for IRAs to 73, up from 72. That change went into effect on January 1, 2023. In addition, the RMD age will increase once again to 75 beginning January 1, 2033.

An RMD is the amount of money that people investing in IRAs need to withdraw each year after they reach age 73. It’s calculated by dividing the IRA’s balance as of December 31 of the preceding year by a life expectancy factor. These life expectancy factors can be found on the IRS Uniform Lifetime Table or the IRS Joint Life and Last Survivor Expectancy Table.

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Secure 2.0 Act: Changes to RMD tax penalties

Generally, people who don’t take the appropriate RMD will face a 50% tax penalty on the amount not withdrawn. The Secure 2.0 Act has reduced that penalty to 25%. 

The penalty may drop to 10% for people who correct the RMD issue in a timely manner. "The penalty may be waived if the account owner establishes that the shortfall in distributions was due to reasonable error and that reasonable steps are being taken to remedy the shortfall," a post by the IRS stated.

Currently, those with Roth IRAs don’t need to take minimum withdrawals from those accounts. Beginning in 2024, the Secure 2.0 Act will extend that feature to Roth 401(k) plans and other Roth accounts within workplace retirement plans. 

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A summary of the Secure 2.0 Act

The Secure 2.0 Act, signed into law at the end of 2022, makes major changes to retirement savings laws.

Here are some highlights that Secure 2.0 brings, including provisions set to take effect within the coming years. 

  • Companies will be required to auto-enroll their eligible employees into 401(k)s, beginning in 2025
  • Beginning in 2025, catch-up contributions toward workplace retirement plans like 401(k)s will increase to $10,000 for employees between the ages of 60 through 63.
  • Part-time employees who have worked for at least two consecutive years with at least 500 hours of annual service will be eligible to enroll in their employer’s 401(k) plans
  • Plan sponsors of individual accounts can create "emergency savings accounts" that allow non-highly compensated employees to make Roth after-tax contributions to a special savings account within the retirement plan, beginning in 2024.

The Secure 2.0 Act, a follow-up to the 2019 Secure Act, is part of a $1.7 trillion omnibus spending package that was signed into law at the end of 2022. 

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