Taking Required Minimum Distributions at a Later Age Can Benefit Your Retirement Plan
We’ve shared information about the SECURE Act 2.0 in two previous articles, which you can review here and here. As a general reminder, this legislation included more than one hundred retirement savings and financial-related changes, many of which are likely to have long-lasting, positive consequences. Today, our goal is to dive further into the RMD age increase included in the new law and discuss the benefits of taking Required Minimum Distributions at a later age.
A Primer on Required Minimum Distributions (RMDs)
Before we jump into the RMD age increase and what it means, let’s do a quick RMD review. An RMD is the amount of money you are required to take out of a retirement account annually when you reach a certain age. It applies to employer-sponsored retirement plans, Traditional IRAs, SEPs, and SIMPLE IRAs, and you must take these distributions even if you don’t need the income to live on.
The SECURE Act 2.0 RMD Age Increase
Beginning this year, in 2023, the age at which you must begin taking RMDs is 73 years. This is an increase from age 72, as stated in the initial SECURE Act in 2019 – and that change was an increase from 70 ½. So, in the last four years, we’ve seen a fairly drastic – and definitely advantageous – RMD age increase.
SEE ALSO: Common Obstacles in the First Decade of Retirement
What Does the RMD Age Increase Mean?
Clearly, if you can wait longer to take your RMDs, then your money has more time to grow – and you aren’t forced to make withdrawals that inflate your income and increase your tax burden when you don’t need them. This is good news!
Another real benefit that we see when it comes to the RMD age increase is that we often work with retired clients to convert an IRA to a Roth prior to reaching their RMD age. This is typically advantageous because they usually go into a lower tax bracket, often down to 12%. Even though they may not need to take funds from their IRA for living, they can do Roth Conversions, pay a low tax rate on the conversion, and now have those funds in an account that will grow tax-free for them. What’s more, it will pass on tax-free to their heirs. With the 12% tax bracket income threshold increasing by about $9000, too, this is also allowing for higher amounts to be converted in the 12% tax bracket.
Will You Benefit from the RMD Age Increase?
If the RMD age increase is on your mind and you’d like to understand how this advantageous retirement planning change impacts you, schedule a conversation with us today. At Resolute, we take pride in helping each client identify and implement the best retirement planning strategies for their unique situations, and we look forward to learning about your goals for your family’s financial future.