Required Minimum Distributions

[Tonster521]

The age for Required Minimum Distributions (RMD) has changed for folks born in 1951 or later. The Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act of 2022 which was signed into law by President Biden as part of the $1.7 Billion spending bill will phase in over a decade the increase in the RMD age to 75. Here are the current RMD provisions:

Age 72 for folks born in 1950 or earlier (before 2020 the age was 70.5)

Age 73 for folks born 1951 - 1959

Age 75 for folks born 1960 or later

Folks born in 1951 should revisit their strategy for any RMD scheduled for 2023 since the age has changed from 72 to 73. Their initial RMD may be rescheduled for 2024.

[r345883t]

The article in the June Bulletin presenting a flow chart to answer questions about RMDs is very valuable.  Such guidance is a very valuable.  AARP should provide that guidance.  Unfortunately, I think there is a mistake in the flow chart for inherited IRAs. 

The flowchart below "Did the original owner die before being obligated to take RMDs?" is not correct according to information I received from Vanguard for an IRA my siblings and I inherited from our mother.  She had been taking RMDs for years; so the answer to that question is / was "No".  We were told, therefore, that we had to ensure HER full RMD for the year of her death was completed by us making further withdrawals (this RMD was based on HER age, not ours).  We were further told, consistent with the flow chart, that we must withdraw the entire amount within ten years.

The "Yes" answer to that question does not apply to us, but I would speculate that the flow chart has flipped or reversed the "Yes" and "No" answers; i.e. if she had died before taking RMDs (answer "Yes") then it might well be that the inheritor would need to take a withdrawal immediately. For us (answer "No"), the rule we were told is "complete HER RMD based on HER age" with no mention of our ages. 

In any case, having AARP help "us" understand the complex rules created by Congress is very helpful.

[DirkB349973]

I attended a retirement and taxes seminar the other day and learned more about required minimum distributions. The thing I had not understood before was that the size of the distributions increase exponentially. As you age and require less, the requirements have you withdrawing larger portions of your 401k/IRA so taxes can be collected. It quickly becomes a case of diminishing returns and makes an argument for converting to an after-tax (Roth) account before you reach that point. Your mileage may vary...

[Tonster521]

@DirkB349973 You are correct. The annual RMD percentage increases each year. However, the amount of RMD (in dollars) may decrease if your qualified account decreases in value. Some folks may have seen a 20% to 30% decrease in 2022. So, their RMD for 2023 may be less (in dollars) than their RMD for 2022. I am providing a link to an article that includes the 2023 RMD Table. https://smartasset.com/retirement/rmd-table To convert the Distribution Period in Years to a percentage, take 100% and divide by the Distribution Period in Years. For example, for a person age 74, take 100% and divide by 25.5. The result is 3.921568627%. I would use 3.93% to ensure compliance with the RMD requirement. You can always take more. However, if you take less, you may incur a tax penalty  for the shortfall.