- The SECURE Act 1.0 delayed the starting age for RMDs from 70½ to 72.
- SECURE Act 2.0 further delays the ages to 73 and 75.
- As a practical matter, while most plan participants and IRA owners will need to access their retirement savings before those ages, the change creates an opportunity for higher compensated and wealthy individuals to delay the tax consequences of mandatory distributions from plans and IRAs.
The President signed the Consolidated Appropriations Act, which included SECURE Act 2.0, on December 29, 2022.
SECURE Act 2.0 has over 90 provisions, some major and some minor; some mandatory and some optional; some retroactively effective and some won’t be effective for years to come. This series of blog articles discusses the provisions that are likely to be the most impactful.
This article discusses the extension of the starting age for Required Mandatory Distributions (RMDs). The SECURE Act 1.0 delayed the starting age from 70½ to 72. SECURE Act 2.0 further delays those dates. As a result of the changes in those two statutes, the ages for starting RMDs are: 72 in 2022; 73 in 2023; and 75 in 2033.
The Senate Finance Committee’s summary of that provision is:
Increase in age for required beginning date for mandatory distributions. Under current law, participants are generally required to begin taking distributions from their retirement plans at age 72. The policy behind this rule is to ensure that individuals spend their retirement savings during their lifetime and not use their retirement plans for estate planning purposes to transfer wealth to beneficiaries. The SECURE Act of 2019 increased the required minimum distribution age to 72. Section 107 [of SECURE Act 2.0] further increases the required minimum distribution age further to 73 starting on January 1, 2023 – and increases the age further to 75 starting on January 1, 2033.
That’s the summary. The Act provides in part:
(v) APPLICABLE AGE.—
(I) In the case of an individual who attains age 72 after December 31, 2022, and age 73 before January 1, 2033, the applicable age is 73.
(II) In the case of an individual who attains age 74 after December 31, 2032, the applicable age is 75.
While that seems straightforward at first blush, there are issues. For example:
- What happens if someone turns 72 in 2022, but opts to take their first distribution on April 1, 2023 (the latest possible date). That person will then be 73 in 2023? Are they under the 72 rule or the 73 rule? The answer is….the 72 age. The RMD for 2022 must be taken, even if in 2023. And another RMD must be taken in 2023 to cover that’s year’s requirement.
- Someone who turns 73 in 2032, and therefore will have an RMD start age of 73, will also turn 74 in 2033 and will therefore have an RMD start age of 75. So, which is it….73 or 75? Unfortunately, the Act doesn’t answer that question. Arguably, it is 73, but that’s just an effort to reconcile a statutory provision that isn’t reconcilable. Fortunately, 2032 is almost a decade away, providing time for Congress to provide technical corrections to the legislation.
Most participants and IRA owners will probably need to withdraw money before they become 73 or 75 years old. However, for the fortunate few who don’t, these changes will provide them with additional years to compound their retirement investments and before they need to start paying taxes on distributions.
Major pieces of legislation tend to come together at the last moment, which creates opportunities for errors. This is one example of that. Fortunately, though, this will almost certainly be cleared up before the 2032 effective date of the provision.
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