Secure Act 2.0. This is the second in the series of videos talking about all the goodies in the latest Secure Act with regards to IRAs and other retirement accounts.
The big conversation for today is how are the new required minimum distributions going to affect you and your family?
The good news is, we already had the required minimum distribution age bump up from 70 and a half to 72. Now, in 2023, if you haven’t already started required distributions, that age increases to 73. If you’ve already started distributions, you have to follow the current schedule that you’re on, but 73 is nice. The good news is, those who are under 63 will be able to use the 2033 rule, where you don’t even start required minimum distributions until you’re 75 years old. So those who are just barely reaching Social Security age or younger, you’re looking at a required distribution age of 75 years old. Those who haven’t started but are turning 73 before then, 73 will be your starting date for required distributions. These are nice rules.
On the flip side, we have a change to the inherited IRA 10-year rule, or actually a change is maybe not the right word. They didn’t fix it. The IRS created a ruling that basically stomped on the concept of everybody being able to defer to the 10th year any withdrawals from an inherited IRA. The way they did that is with something called the “at least as rapidly rule”. In essence, if the person who passed away had not yet hit required minimum distributions, then the beneficiary can leave that money in an IRA through the 10th year, take all the money out at the end, if he or she so chooses.
However, if that person had already started required distributions, the IRS had actually said, “no, you must at least withdraw as much as the original owner would’ve had that person stayed alive”. Now, that’s a complexity that caught so many people that they have waived the penalty for 2021 and 2022. But starting 2023, people have to get caught up on those distributions if they inherited an IRA from someone who is making required minimum distributions.
You know how complexity just compounds? Secure Act 2.0 added a lot of complexity to IRA withdrawals. This is just the beginning. We’ve got a number of other videos that we’re going to be talking about different parts of this act and how they may or may not impact you. But in general that RMD age has been pushed back, and that’s a good thing for most people.
Now, if this stuff is of value to you, it’s probably of value to some of your friends. Please feel free to forward this video. As always, we wish you the best of investing success. Thank you.