Should You Wait to Take RMDs? Understanding SECURE Act 2.0 Based on Age
SECURE Act 2.0, or the New Secure Act, is a proposed piece of legislation that builds upon the original SECURE Act. It was introduced in the US Congress in 2021 and seeks to further improve the retirement savings of Americans and increase access to retirement plans. The new bill aims to enhance the retirement security of American workers by making it easier for them to save and providing greater flexibility in using their savings.
SECURE Act 2.0 includes several new provisions aimed at expanding retirement savings options, increasing portability, and reducing barriers to entry for workers. Some of these provisions include allowing workers to withdraw funds from their retirement accounts for birth or adoption expenses, permitting part-time workers to participate in 401(k) plans, and increasing the cap on automatic enrollment safe harbor contributions.
Chris Cordoba, CFP explains what you need to know about timing RMDs and more in this video.
Watch Chris Cordoba's Video on RMD Timing and SECURE Act 2.0
The bill also includes provisions aimed at improving the accessibility of annuities as a retirement income option and providing tax incentives for small businesses to offer retirement plans to their employees.
Overall, SECURE Act 2.0 aims to build on the original SECURE Act and further improve the retirement savings and security of American workers.
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By Christian Cordoba
CERTIFIED FINANCIAL PLANNER™
Founder, California Retirement Advisors
Video Transcript:
In this video, we'll explore one of the most important decisions regarding the Secure Act 2.0, and those involve required minimum distributions, better known as RMDs. Now, we know RMDs historically as those pesky distributions that the government makes you take out of your IRA and other types of retirement accounts like 403(b)s, 457s, and 401(k)s. If you're no longer working, when you do so, you incur additional taxable income even if you don't need the money.
So, when you're forced to take out those RMDs matters as part of your total retirement distribution strategy because it can really influence the decisions and the results associated with things like your investments, which impact your net worth, your taxes, which influence your cash flow, and the amount of legacy assets that would ultimately affect your inheritance.
Now, regarding the Secure Act 2.0 and RMDs, there are three groups of people that should know about this. And just to keep it simple, let's break it down based on the year that you were born:
- People born in 1950 or prior to 1950.
- People born between 1951 and 1959.
- People born in 1960 or later.
Alright, let's break it down one at a time. Now, if you were born prior to 1950, guess what? This doesn't really affect you at all. So why is it important for you to know about this? Well, likely you already started taking your RMDs last year or sooner, and I want to make sure that you know to continue to do so going into 2023. In other words, don't listen to your brother-in-law and make changes just because that's what he's doing for himself. You'll start hearing about other people who don't have to take RMDs in 2023 or until later, and that doesn't apply to you. So don't make a costly mistake and stop your distributions inadvertently.
Next, people born between 1951 and 1959, you're in luck because the government really likes you. In fact, they're giving you one more year to begin taking your first RMD at age 73 instead of age 72. To be clear, therefore, there's no new RMDs for anyone turning age 72 this year based on your age. However, I'd be remiss if I didn't mention that there is one exception to this rule as far as not having to take your first RMD in 2023. That exception would be if your required beginning date, or your RBD, was in 2022, and for one reason or another, you decided to postpone your first RMD last year. You postponed it until this year, which you have the ability to do with your first RMD. So, you still need to take your first and your second RMD in 2023 for 2022, which you postponed, and now again for 2023. So, don't overlook that if you fall in that camp.
Finally, people born after 1960, you get an even better deal. The government not only likes you, they love you. Your RMDs are pushed back to 75.
Alright, so now comes the important question: should you wait? There is no hard and fast rule on this. In fact, it's going to really depend on your own situation, what's most important to you about money, and how you think about these items not just for yourself but for the family and the people that you love. Because of that, it's really important that you either, if you have the time, knowledge, and desire to do this on your own, you start with an assessment. If you don't, you contact your tax advisor, your investment advisor, your financial planner—anybody who is serving as your key contact to help you make these decisions. You create an assessment not just pertaining to your investments, but also pertaining to your cash flow, your taxes, your inheritance, and what some of these decisions might influence you if you decide to wait. The idea here is to start forming a tax-efficient, preservation-based strategy in a proactive manner that can help you not only today but in the future for yourself and for your family.