Changes in the rules for required minimum distributions (RMDs) from retirement plans have caused confusion among retirees. Initially, the age for obligatory yearly withdrawals was 70½, but this was raised to 72 in 2019 and will increase to 73 in 2023. The regulations for RMDs from inherited individual retirement accounts are more complex, resulting in the IRS waiving penalties for missed withdrawals recently.
Starting in 2023, RMDs will be applicable to both pretax and Roth 401(k) accounts, as well as most individual retirement accounts (IRAs). However, Roth IRAs are not subject to RMDs until after the account owner’s death. Retirees who fail to meet their annual RMD or withdraw less than the necessary amount face a 25% penalty on the deficit. This penalty can be reduced to 10% if the RMD is corrected within two years.
Key Takeaways:
- The age for mandatory annual withdrawals from retirement plans, known as required minimum distributions (RMDs), has increased from 70½ to 72 and will further increase to 73 in 2023.
- From 2023, RMDs will apply to both pretax and Roth 401(k) accounts, as well as most individual retirement accounts, but Roth IRAs are exempt until after the account owner’s death.
- Retirees who fail to meet their annual RMD or withdraw less than the required amount face a 25% penalty on the shortfall, which can be reduced to 10% if the RMD is corrected within two years.
“Required minimum distributions (RMDs) from retirement plans have been a source of confusion for retirees due to frequent changes in recent years. Previously, the age for mandatory yearly withdrawals began at 70½, but this was increased to 72 in 2019 and will rise to 73 in 2023.”
More details: here
Leave a Reply