Voices Tax Strategy: RMD changes for 2023
By Mark A. Luscombe
August 15, 2023, 9:00 a.m. EDT
The Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 was enacted on Dec. 29, 2022.
SECURE 2.0 was an update to the SECURE Act enacted in December 2019. Both the SECURE Act and SECURE 2.0 made significant changes to qualified retirement plans. SECURE 2.0 had several provisions that were effective immediately or in 2023.
SECURE 2.0 extended the required beginning date for required minimum distributions (RMDs). This resulted in IRA owners who turn age 72 in 2023 no longer being required to take RMDs.
In addition to the waiver of the penalty for failure of inherited IRA beneficiaries to take RMDs in 2021, 2022, and 2023, SECURE 2.0 has also lowered the penalties for failure to take RMDs when they do apply. Beginning in 2023, the penalty for failing to take an RMD is lowered from 50% to 25% of the amount of the required RMD not distributed. The penalty may be further reduced to 10% if the individual takes action to withdraw the sum not taken and submits a corrected tax return and pays any tax in a timely manner within two years after the year of the missed RMD.
The IRS has indicated that, even with the lower penalties, it will continue to consider waiver of the penalties for good cause shown by the taxpayer.
SECURE 2.0 also provided several new exceptions to the 10% penalty, including a withdrawal of up to $1,000 for unforeseeable or immediate family emergency expenses, a withdrawal by an individual certified as having a terminal illness, and, beginning in 2024, up to the lesser of $10,000 or 50% of the vested retirement account balance for an individual who had been subject to domestic abuse.
Other SECURE 2.0 changes
Besides the increase in the RMD age from 72 to 73 effective Jan. 1, 2023, SECURE 2.0 also authorizes employer matching contributions to be made to Roth accounts.
Individuals over age 70½ may make a one-time $50,000 (adjusted for inflation) qualified charitable distribution to a charitable remainder trust or a charitable-gift annuity. As with other qualified charitable distributions, such distributions count toward RMD amounts.
The IRS has stated that when final regulations are issued, they will not be effective until 2024 at the earliest.