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Published: March 10, 2025
Changes in Required Minimum Distribution rules are essential for anyone managing retirement funds. In this guide, we break down the latest regulatory updates, explain how these changes impact your withdrawal strategies, and provide actionable tips to ensure compliance while optimizing your tax outcomes.
Key Changes in RMD Rules
1. RMD Age Increases Under the SECURE Act & SECURE 2.0
- Before 2020, RMDs began at age 70½.
- The SECURE Act of 2019 raised the RMD age to 72.
- The SECURE 2.0 Act of 2022 increased the RMD age to 73 (for those born 1951-1959) and will further raise it to 75 (for those born in 1960 or later, starting in 2033).
- Impact—If you haven’t yet reached RMD age, you may have more time to allow your investments to grow tax-deferred before mandatory withdrawals.
2. Roth 401(k)s No Longer Require RMDs
- Previously, Roth 401(k)s had mandatory RMDs—even though Roth IRAs never required them.
- Starting in 2024, Roth 401(k)s are exempt from RMDs, meaning you can now leave funds in your Roth 401(k) without withdrawing.
- Impact—You are no longer forced to roll over your Roth 401(k) into a Roth IRA simply to avoid RMDs. This provides greater flexibility in tax-free retirement planning.
3. Changes to Inherited IRAs & the 10-Year Rule
- SECURE Act (2020): Eliminated the Stretch IRA for most non-spouse beneficiaries.
- New Rule—Non-eligible beneficiaries (e.g., adult children) must withdraw the full balance within 10 years of inheriting the account.
- Clarification (2022 IRS Guidance)—If the deceased had already begun RMDs, annual RMDs are required in years 1-9, in addition to the 10-year full withdrawal deadline.
- Impact—If you inherit a tax-deferred IRA, you need to plan carefully to minimize tax burdens associated with large withdrawals.
4. Reduced Penalty for Missing an RMD
- Previously, failing to take an RMD resulted in a 50% penalty of the amount not withdrawn.
- SECURE 2.0 (2023) reduced the penalty to 25%, and if corrected in a timely manner, it drops to 10%. For more information, see When to Take Your Required Minimum Distribution (RMD).
- Impact—The lower penalty provides relief if you mistakenly miss an RMD, but it’s still essential to take required withdrawals on time.
5. Higher QLAC Contribution Limits
- A Qualified Longevity Annuity Contract (QLAC) allows retirees to defer RMDs on a portion of their retirement savings until age 85.
- New Limit—SECURE 2.0 raised the maximum QLAC contribution from $145,000 to $200,000, and it eliminated the 25% cap on total retirement assets.
- Impact—More flexibility in deferring taxable distributions for those seeking long-term income stability.
How These Changes Affect You
- More Time to Plan Withdrawals—If you haven’t reached RMD age, you can now delay withdrawals, allowing more tax-deferred growth.
- Less Pressure on Roth 401(k) Owners—No need to roll funds into a Roth IRA solely to avoid RMDs.
- More RMD Planning for Inherited Accounts—If you’re inheriting an IRA, be aware of the 10-year withdrawal rule and required minimum withdrawals.
- Reduced Penalties for Missed RMDs—While the penalty is now lower, ensuring timely withdrawals remains crucial.
- New Opportunities for Longevity Planning—Higher QLAC limits mean more flexibility in delaying taxable distributions.
Next: 8 Expert RMD Strategies for a Rich Retirement
With the evolving RMD rules, it’s more important than ever to have a strategy in place to manage your withdrawals efficiently. By making smart decisions about timing, tax planning, and reinvesting unneeded funds, you can optimize your retirement income and minimize tax burdens. In the next section, we’ll explore key strategies to help you make the most of your RMDs.
Read Next: 8 Expert RMD Strategies for a Rich Retirement ➡