Proposed changes to required minimum distributions (RMD)

DATE | 12/12/22
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There have been changes surrounding retirement account RMDs in the past few years, and more could be coming.

Let’s break it down into:

  • Changes that took place in 2020.
  • Changes that may be coming.

What happened in 2020?

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was enacted on December 20, 2019, with many provisions effective beginning January 1, 2020. The law included changes to RMDs for both account holders and their beneficiaries.*

Account owners who turned age 70½ after December 31, 2019, now start taking their RMDs at age 72. The SECURE Act provides additional time to do Roth IRA conversions without having to worry about the impact of RMDs. However, once RMDs begin, those RMDs cannot be converted to a Roth IRA.

Certain beneficiaries who inherit from someone who died after December 31, 2019, must take the money out and pay any taxes due within 10 years. The rule generally exempts surviving spouses, minors, and some others (eligible designated beneficiaries (EDBs)). The 10-year rule only affects beneficiary accounts of those not considered EDBs. EDB account owners can still stretch their accounts according to their life expectancy.

For more in-depth information about the 2020 provisions that impact beneficiary accounts, read our SECURE Act 2020 FAQs.

*This provision is not retroactive, so it does not affect those who inherited a retirement account and/or IRA in 2019 or in prior years.

What changes might be coming?

At this time, no action is needed. In March 2022, the U.S. House of Representatives passed the Securing a Strong Retirement Act of 2022. In June, The Enhancing American Retirement Now (EARN) Act and the Retirement Improvement and Savings Enhancement to Supplement Healthy Investment for the Nest Egg (RISE & SHINE) Act achieved approval. These three bills are collectively known as the SECURE Act 2.0. There are similarities between all three bills that must be reconciled into one bill before a vote on the final bill.

Some of the proposed provisions** that may impact retirees or those close to retirement include:

  1. The age required to begin taking RMDs may be pushed back from age 72 to age 73, then age 74 starting in 2029, and to age 75 in 2032.
  2. Employees between the ages of 62 and 64 would be able to contribute additional catch-up contributions up to $10,000 to their employer retirement plan. This is an increase from the current age 50 catch-up contribution of $6,500.
  3. All age-based catch-up contributions made to a retirement plan would be required to be designated as Roth contributions and will be subject to the Roth rules for distribution purposes.
  4. Part of the RISE and SHINE Act includes a provision that would amend the cash-out limit from $5,000 to $7,000. Employers would be allowed to transfer employee’s retirement accounts out of the employer plan to an IRA if their balance is between $1,000 and $7,000. Very few school districts have a cash out provision in their plan.
  5. Reducing the required years of service from three to two for part-time employees to be allowed to participate in an employer’s retirement savings plan.

**Subject to change through the legislative process.

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