Saving up to have a comfortable—or at the very least, stable and secure—retirement is a lifelong endeavor. An Individual Retirement Arrangement, or IRA, as it is more commonly referred to, is the tax-favored choice many individuals opt for when setting up a savings account for their future. There are a number of IRAs available, such as the Traditional IRA or a Roth IRA, among others.
When starting these savings funds, it is also quite important to ensure you are aware of the mandatory withdrawals that you will need to make from these accounts once you reach a certain age. These are called Required Minimum Distributions (RMDs). Over the course of the last few years, some changes and updates have been made to the rules of required minimum distributions under both the SECURE Act as well as the SECURE 2.0 Act.
As such, in 2024, three new rules surrounding required minimum distributions came into effect. Here is what you need to know.
Three new rules regarding the required minimum distributions (RMDs)
“You cannot keep retirement funds in your account indefinitely. You generally have to start taking withdrawals from your IRA, SIMPLE IRA, SEP IRA, or retirement plan account when you reach age 73,” according to the IRS. In 2019, the SECURE Act was passed, and following this, in late 2022, the SECURE 2.0 Act was also passed. Under these two acts, the rules regarding required minimum distributions underwent a number of changes, some considerably significant.
As such, just last year, three new rules came into effect with regard to RMDs.
1. No RMD on all Roth accounts
The IRS describes a Roth IRA as “a tax-advantaged personal savings plan where contributions are not deductible but qualified distributions may be tax-free.” Up until 2024, only Roth IRAs had been exempt from required minimum distributions, while accounts like Roth 401(k)s and Roth 403(b)s still required RMDs despite the individual already having paid taxes on their contributions.
As of 2024, however, all Roth account types are now exempt from RMDs, and, as a result, the individual can now let the money in that fund grow without lifetime withdrawal requirements for the duration of their lifetime.
2. Reduced penalty for missing RMDs
Previously, if you did not make an RMD withdrawal at the stipulated time, you would be subject to a penalty of 50% of the amount that should have been withdrawn. Now, under the SECURE 2.0 Act, this penalty has been lowered to only 25% of your withdrawal amount. Additionally, if you can show that you promptly corrected the error of missing your withdrawal, the penalty drops even further to 10%.
3. Increased flexibility for spousal IRA inheritance
When you inherit an IRA, your RMDs are determined using the IRS Single Life Expectancy Table (SLET). Since the SLET is based on the life expectancy of the beneficiary, the resulting RMDs are usually much larger. Now, under the SECURE 2.0 Act (effective 2024), if you inherit an IRA from your spouse, you have the option in certain cases to take your RMDs using rules aligned with the Uniform Lifetime Table (ULT) instead, resulting in smaller RMDs—provided that your spouse had passed away before reaching RMD age.
Types of IRAs
There are various types of IRAs to cater to the needs of different people. Listed below are some types of IRAs, as per the IRS website:
- Traditional IRA — A tax-advantaged personal savings plan where contributions may be tax-deductible.
- Roth IRA — A tax-advantaged personal savings plan where contributions are not deductible but qualified distributions may be tax-free.
- Payroll Deduction IRA — A plan set up by an employer. Employees make contributions by payroll deduction to an IRA (Traditional or Roth) they establish with a financial institution.
- SEP — A Simplified Employee Pension plan set up by an employer. Contributions are made by the employer directly to an IRA set up for each employee.
- SIMPLE IRA — A Savings Incentive Match Plan for Employees set up by an employer. Under a SIMPLE IRA plan, employees may choose to make salary-reduction contributions, and the employer makes matching or nonelective contributions.
- SARSEP — The Salary Reduction Simplified Employee Pension Plan, a type of SEP set up by an employer before 1997 that includes a salary-reduction arrangement.
Quick, realistic examples
Missed RMD penalty under SECURE 2.0
Say your 2024 RMD was $8,000 and you missed the deadline. Under the old rules, the excise tax was 50 percent ($4,000). Under current law it is 25 percent ($2,000). If you correct promptly under IRS procedures, it can be reduced to 10 percent ($800).
Roth accounts and lifetime RMDs
Before 2024, a Roth 401(k) or 403(b) could require withdrawals during the owner’s lifetime. Since 2024, Roth IRAs, Roth 401(k)s and Roth 403(b)s no longer require lifetime RMDs for the account owner. A $120,000 Roth 401(k), for example, can remain invested without a lifetime withdrawal requirement while you are the owner.
Inheriting a spouse’s IRA
If you inherit a $300,000 IRA from a spouse who died before reaching RMD age, certain SECURE 2.0 changes allow treatment that lines up with the Uniform Lifetime Table in some cases. Because that table generally uses a larger divisor than the Single Life Expectancy Table, the annual withdrawal may be smaller. As a simple illustration: a divisor of 30 implies about $10,000, while a divisor of 20 implies about $15,000. Actual divisors depend on your age and the IRS tables in effect.
Timing your first RMD at age 73
If you turn 73 on June 15, 2026, your first RMD (for 2026) is due no later than April 1, 2027. Your 2027 RMD is still due by December 31, 2027, which means deferring the first RMD can bunch two withdrawals into the same tax year.