Increased RMD Age
Congress also passed the SECURE 2.0 Act, which increased the applicable RMD age again from age 72 to age 73 in 2023, and then to age 75 in 2033 (or the year of retirement, if later, for certain plan participants who are not five percent owners).
You must take your first required minimum distribution for the year in which you reach age 73. However, you can delay taking the first RMD until April 1 of the following year. If you reach age 73 in 2024, you must take your first RMD by April 1, 2025, and the second RMD by Dec. 31, 2025.
The law extended the start of RMDs beyond age 72 on a gradual basis: For those who reached age 72 after Dec. 31, 2022, and age 73 before Jan. 1, 2033, the RMD age would be 73. For those who reach age 74 after Dec. 31, 2032, the RMD age would be 75.
Mistake #1: Not Starting Your RMD on Time
The rules for RMD starting ages have undergone changes in recent years, leading to confusion among many individuals. In the past, the starting age for RMDs was 70½. However, as of 2023, the starting age stands at 73 and is set to increase to 75 in the future.
The 4% rule is a fixed spending plan. Any variable spending plan can allow a retiree's savings to last indefinitely, but it means that they need to cut back if they don't get favorable portfolio returns or if they live too long. "It's easy to gloss over this aspect of an RMD rule.
Ultimately, this comes down to the choice that's best for your finances. Your money has the most potential for growth if you take your entire minimum distribution at the end of each calendar year.
All distributions must be made by the end of the 10th year after death, except for distributions made to certain eligible designated beneficiaries.
New for 2023: The Secure 2.0 Act raised the age that account owners must begin taking RMDs. For 2023, the age at which account owners must start taking required minimum distributions goes up from age 72 to age 73, so individuals born in 1951 must receive their first required minimum distribution by April 1, 2025.
If you're at least age 59½ and your Roth IRA has been open for at least five years, you can withdraw money tax- and penalty-free. See Roth IRA withdrawal rules.
Required minimum distributions (RMDs) are the minimum amount that you must withdraw from certain tax-advantaged retirement accounts. They begin at age 72 or 73, depending on your circumstances and continue indefinitely. There is, unfortunately, no age when RMDs stop.
According to the Uniform Lifetime Table, a 75-year-old should use a distribution period of 24.6 years when calculating an RMD. So you'd simply divide the year-end balance by this factor. Dividing $500,000 by 24.6 years gives you an RMD of $20,325.
If the individual turns 72 in 2023, their first RMD will be for 2024 (the year they turn 73) and can be taken as late as April 1, 2025.
The 4% rule is a popular retirement withdrawal strategy that suggests retirees can safely withdraw the amount equal to 4% of their savings during the year they retire and then adjust for inflation each subsequent year for 30 years.
How RMDs are calculated. To calculate your required minimum distribution for the current year, you divide your account balance at the end of the last year by your life expectancy. The IRS provides tables that show you which life expectancy numbers to use based on your age and if you are sharing your RMD with a spouse.
Before the Secure Act of 2019, heirs could "stretch" inherited IRA withdrawals over their lifetime, which helped reduce yearly taxes. But certain accounts inherited since 2020 are subject to the "10-year rule," meaning IRAs must be empty by the 10th year following the original account owner's death.
Age when RMDs are first required
There is a two-step process under the SECURE 2.0 Act for increasing the age when RMDs become necessary. Step 1: Beginning in 2023, the age to start taking RMDs jumped from 72 to 73. Step 2: Beginning in 2033, it creeps up again to 75.
Notice 2024-35 once again waived RMD penalties in 2024 for beneficiaries of accounts when the original owners died after their required beginning date and the beneficiary inherited the account in 2020, 2021, 2022 or 2023.
For example, imagine a retiree with an IRA worth $500,000 on Dec. 31, 2024. If he or she is beginning to take RMDs in 2025, at age 73, the RMD would be $18,867.92 ($500,000 / 26.5). But if this person has already turned 74 in 2025, the distribution amount would be $19,607.84 ($500,000 / 25.5).
If you are taking RMDs and collecting Social Security benefits, the RMDs will not impact the amount of your benefits—but it could impact how much of your Social Security benefit is taxable. The amount your Social Security is taxed depends on your annual income. RMDs may increase your taxable income.
If you need or want more income sooner rather than later: Taking only the RMD and doing so at the end of the year is usually the most tax-efficient choice.
The government sees RMDs as money you should pay taxes on, so you can't directly convert it into the Roth IRA savings like you can with the other money. However, once the post-taxed RMD money hits your bank account, you are free to invest that money as you wish within the Roth IRA guidelines.