Recent retirement savings legislation (e.g., the SECURE 2.0 Act) has created confusion about when people must begin taking required minimum distributions (RMDs) from tax-deferred retirement savings accounts. (RMDs are the minimum amounts you must withdraw from certain retirement accounts each year once you reach a certain age.)
New RMD rules
For example, a few years ago, the SECURE Act raised the age for taking RMDs from 70.5 to 72. But when the SECURE 2.0 Act became law, the RMD age moved to 73. That raised questions for many about when their first RMDs were due.
Confusing things even more, the IRS delayed rules for some inherited IRA RMDs. The agency also waived penalties for failing to take certain RMDs. So, for 2023, some retirees wonder whether and when they must take required minimum distributions.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
RMD age by birth year
Thankfully, to simplify things, there is a relatively straightforward guideline for some 2023 RMDs. That’s because the age at which you must start taking required minimum distributions is determined by your birth year.
- Essentially, if you were born in 1950 or earlier, you must take required minimum distributions in 2023.
- However, if you were born on or after January 1, 1951, you are not obligated to take RMDs in 2023.
Note: Accounts subject to RMD rules include employer-sponsored retirement plans including, including profit-sharing plans, 401(k) plans, 403(b) plans, and 457(b) plans. Other tax-deferred retirement accounts, such as traditional IRAs, SEPs, and SIMPLE IRAs, are also subject to RMDs.
Do Roth IRAs have RMDs? But remember that inherited IRAs have their own set of complicated rules. Meanwhile, Roth IRA accounts are not subject to RMD requirements until after the account owner dies. And beginning in 2024, RMDs won’t be required for designated Roth 401(k) accounts. (However, 2023 RMDs due by April 1, 2024, are still required.)
When do RMDs start?
- If you reach age 72 in 2023, your first RMD can be delayed until age 73. So, the first RMD (for 2024) is due April 1, 2025.
- If you were age 72 in 2022, the prior RMD rule applies. That means your first RMD was due April 1, 2023, and your second RMD was due Dec. 31, 2023. (The RMD amount would be based on your account balance on Dec. 31 of last year, 2022).
It's important to note that your first RMD can wait until the 1st of April, the following year. That might give you time to align the distribution with your financial situation, but it can result in two RMDs in a year.
However, remember that subsequent RMDs must be completed by December 31 of a given year.
How are RMDs taxed?
Required minimum distributions are generally taxed as ordinary income in the year they are taken. So, RMDs can increase your taxable income and potentially push you into a higher federal income tax bracket.
Additionally, increased income from required distributions can affect your eligibility for some tax credits and deductions and impact the amount you pay in Medicare Part B and D premiums.
What can you do? Given the potential impacts of RMD income and recent legislative changes in SECURE 2.0, it's essential to stay informed and seek advice from financial experts to ensure compliance with the latest regulations. Also keep in mind that failing to take RMDs can result in IRS penalties.
Consult your financial advisor or a tax professional to plan your retirement account distributions and make informed decisions on withdrawals that optimize your financial situation in retirement while minimizing tax implications.
Related Content
-
Five Ways Trump’s 2025 Tax Bill Could Boost Your Tax Refund (or Shrink It)Tax Refunds The tax code is changing again, and if you’re filing for 2025, Trump’s ‘big beautiful’ bill could mean a bigger refund, a smaller one or something in between next year. Here are five ways the new law could impact your bottom line.
-
New SALT Deduction Could Put Thousands Back in California Homeowners’ PocketsTax Breaks The federal state and local sales tax (SALT) deduction cap is higher this year, and could translate into bigger savings for Golden State homeowners.
-
Money for Your Kids? Three Ways Trump's ‘Big Beautiful Bill’ Impacts Your Child's FinancesTax Tips The Trump tax bill could help your child with future education and homebuying costs. Here’s how.
-
Why Your Summer Budget Feels Tighter: Tariffs Push Up InflationTariffs Your summer holiday just got more expensive, and tariffs are partially to blame, economists say.
-
Alabama Tax-Free Weekend 2025Tax Holiday Here’s everything you need to know about the 2025 back-to-school Alabama sales tax holiday.
-
Key 2025 Tax Changes for Parents in Trump's MegabillTax Changes Are you a parent? The so-called ‘One Big Beautiful Bill’ (OBBB) impacts several key tax incentives that can affect your family this year and beyond.
-
‘I Play Pickleball in Retirement.’ Is It HSA-Eligible?Retirement Tax Staying active after you retire may be easier with these HSA expenses. But there’s a big catch.
-
Mississippi Tax-Free Weekend 2025Tax Holiday Just in time for Prime Day, Mississippi celebrated a tax holiday in July. Find out what back-to-school essentials were included.
