SECURE 2.0 Changes to Required Minimum Distribution Rules (RMDs)

Updated August 24, 2023

The Tax Code requires participants in workplace retirement savings plans to begin withdrawing a minimum amount, a required minimum distribution (RMD), annually by a specific date triggered by age. A retirement plan may force those withdrawals to begin even earlier once its participants reach the retirement age defined in the plan document. Generally, however, plan documents align the date of minimum withdrawals with that mandated in the Tax Code.

SECURE 2.0 contains several important provisions that impact Required Minimum Distributions:  

  • The mandatory minimum distribution trigger age is stepped up to 73 (2023) and then to 75 (2033)
  • Lifetime minimum withdrawals are no longer required from Roth 401(k) and Roth 403(b) accounts
  • Penalty tax for a failed required minimum withdrawal is reduced from 50% to 25% (possibly 10%)
  • A surviving spouse may now make an election to be treated like the employee for RMD calculation

RMD Triggering Age Increase

Initially, the RMD age was set at 70; this changed when SECURE Act of 2019 increased it to 72 beginning in 2020. SECURE 2.0 updated the age in two steps: 73 in 2023 and 75 in 2033.   It’s important to note that the law has long allowed delaying RMDs until the later of April 1 following the year of the triggering age or retirement.  (Note, retirement is not relevant for employees classified as 5% owners of the employer; they must begin RMDs by April 1 following the year of the triggering age.)  Here is how the trigger age rules work now:  

Birth Date Triggering Age for Minimum Withdrawals
Before July 1, 1949 70 1/2
July 1, 1949 – 1950 72
1951 – 1959 73
1960 or later1 75

Lifetime Withdrawals No Longer Required from Roth 401(k) and Roth 403(b) Plans

SECURE 2.0 puts Roth accounts within workplace retirement plans on an equal footing with Roth IRAs.  Effective with the 2024 tax year, Roth accounts within a 401(k), 403(b) and governmental 457(b) plans will not be included in calculating the RMD amount.  (RMDs related to the 2023 tax year paid in 2024 will include the Roth accounts.)  

Reduced Penalties for Failed Minimum Withdrawals

Failures to timely take required minimum distributions from retirement accounts have historically triggered a hefty 50% penalty tax on the amount of shortfall. Effective December 29, 2022, the new law lowers this penalty to 25%, with a reduction to 10% available for errors fixed during a two-year correction window.   The opportunity to request penalty tax abatement from the IRS continues for individual taxpayers; retirement plans may apply for the tax waiver on behalf of plan participants under the terms of the IRS Voluntary Correction Program, VCP.

Surviving Spouses May Elect to be Treated like the Employees for RMD Calculation

SECURE 2.0 aligns workplace retirement account RMD rules for spousal beneficiaries with those long available to IRA accounts. Now spousal beneficiaries may elect to be treated like the employee for determining when RMDs must begin. This change affords the choice of a more extended distribution period resulting in smaller minimum required withdrawal amounts. This provision of SECURE 2.0 appears optional; IRS guidance will be needed to confirm.  

Let Pinnacle Plan Design Help

Consultants at Pinnacle Plan Design are actively monitoring new guidance concerning SECURE 2.0. This represents our understanding of the laws at this time.  Additional guidance will provide additional clarity.  If you have any questions about the application of the RMD rules in your retirement plan, don’t hesitate to contact us at (520) 618-1305.

  1. SECURE 2.0 contains a drafting error regarding the effective date for transition from the RMD age of 73 to age 75. The Senate Finance Committee’s summary of SECURE 2.0 appears to imply that these participants should have a triggering age of 75; a technical correction is anticipated to address this issue. ↩︎
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