Attention, savers: Over the holidays, Congress quietly passed new rules that could have a big impact on your retirement. Americans now don't have to start taking required minimum distributions, or RMDs, until they turn 73 — a year later than they previously had to.
An RMD is the amount you must withdraw from certain retirement accounts every year after a specific age (or retirement). Per the IRS, RMD rules apply to account holders and beneficiaries of 401(k)s, 403(b)s, traditional IRAs, SEP IRAs, profit-sharing plans and more.
These accounts are tax-advantaged, so RMDs are the government's way of finally getting its hands on those funds (and making sure you're not just sheltering them from taxes forever).
The change is part of the massive federal spending package President Joe Biden signed just before the new year. Several retirement provisions were included in a bill called the SECURE 2.0 Act, which, among other things, also requires employers to automatically enroll eligible workers in their 401(k) and 403(b) plans starting in 2025.
The RMD age tweak is actually an extension of a change from the first SECURE Act, which in 2019 raised the age for RMDs from 70 1/2 to 72. In addition to bumping up the age for 2023, the SECURE 2.0 Act also set up a future adjustment: In 2033, the RMD age will increase to 75.
Howard Gleckman, a senior fellow in the Urban-Brookings Tax Policy Center, wrote in a blog post that the changes are largely expected to benefit wealthy Americans.
"Most retirees already withdraw at least their required distribution amounts to pay for normal living costs," he added. "The big beneficiaries of delaying RMDs are the wealthy who do not need retirement savings to pay expenses or their heirs."
RMDs generally have to be taken by April 1 the year after you reach the age in question, with another withdrawal required by Dec. 31. The exact amount of an RMD depends on your own financial situation (and a bunch of math). The withdrawal typically gets included in your income for each year (unless you've already paid taxes on it), meaning it's subject to ordinary taxes at your regular income tax rate.
Failing to take an RMD comes with financial consequences. But the SECURE 2.0 Act changed the policy around that, too. The penalty for not taking an RMD went from a 50% tax on the amount you didn't withdraw to 25%. And it's just 10% if you make the proper withdrawal by the end of the second year you were supposed to.
All of this means that you can hang on to more of your retirement savings longer — if you can afford to, that is.