Millions of Americans saving for retirement will see three major RMD changes to their 401(k) and IRA withdrawal rules. Under the SECURE 2.0 Act, the government has simplified the Required Minimum Distributions (RMDs) rules. This has made it easier for retirees to manage their savings without incurring costly penalties.
The following three rule changes could impact how much you keep and when you must start making withdrawals if you are nearing retirement or already taking withdrawals.
1. The new RMD starting Age Rises to 73 for retirees born between 1951 and 1959.
The age at which you must begin making RMD withdrawals has increased from 72 to 73. This means that anyone turning 73 in 2025 will now be required to make withdrawals that year. Additionally, starting in 2033, the RMD age will rise again to 75. This is an advantage for younger savers because they will have more time to invest their tax-deferred income.
The change will give retirees more time to invest their money before they are required to start making withdrawals. This will enable them to earn more over time.
2. Roth 401(k)s and 403(b)s are Now Off the Hook
Previously, even if you diligently saved in a Roth 401(k), you were still required to take RMDs once you reached the designated age unlike Roth IRAs, which had no such rule. But that changed in 2024, when Roth 401(k)s and Roth 403(b)s became fully exempt from lifetime RMDs.
As a result, you will not be required to make mandatory withdrawals on your Roth 401(k). This change allows retirees more freedom to not touch Roth balances, allowing them to grow tax-free or pass to heirs. Additionally, the change acts as an incentive for anyone still working and contributing to a Roth 401(k) to continue building their investment without worrying about forced withdrawals later.
3. The Penalty for Missing an RMD is Smaller but Still Painful
Previously, the IRS imposed a 50% excise tax on any amount you failed to withdraw. Under the SECURE 2.0 Act, the penalty has been reduced to 25% and there are possibilities of it going further down to 10% if you correct the mistake quickly by making the withdrawal and filing an amended return in time.
This change makes the rule a bit lenient for retirees who might make an honest mistake or face confusion over when to withdraw their RMDs. Despite the change, experts urge retirees to avoid misses because even the reduced penalties can still cause headaches.
Why These RMD Changes Matter
The three changes combined make the RMD process simpler, fairer, and more flexible for retirees. It also allows retirees to have more control over their savings and to make more earnings over time.
If you are a retiree managing multiple retirement accounts or approaching age 73, you can make the best out of these changes by:
- Reviewing your account balances and beneficiaries.
- Confirming when your first RMD is due.
- Seeking financial advice about Roth conversions or withdrawal strategies that will boost your investment and minimize taxes.
Conclusion
Following the three major changes, Roth 401(k)s and 403(b)s no longer require lifetime withdrawals. Additionally, penalties for missing an RMD have reduced greatly and there is a possibility they will reduce further.
These changes will give retirees greater peace of mind and allow them to keep their savings growing tax-free in 401(k)s for as long as they wish. It will also allow them to enjoy the flexibility enjoyed by Roth IRAs.