SECURE 2.0 Act Changes RMD Rules This Year
January 10, 2023
As you might already know, the long-standing age at which withdrawals from retirement accounts were required to begin (called required minimum distributions, or RMDs) was recently changed by the 2019 SECURE Act from 70 ½ to age 72. But because the SECURE Act only partially addressed pressing issues facing retirees and those soon to retire, lawmakers quickly went to work on the SECURE 2.0 Act, which has now passed through Congress.
Now, the age at which RMDs must begin has been raised to 73, starting in 2023, and will again bump to 75 in 2033. But how will these new regulations affect you individually?
For those of you planning to begin RMDs earlier anyway, there will be no change. But some of you hoped to leave your money in retirement accounts for longer, to allow for further growth. So you can now wait until age 73, or 75 if you won’t reach that age until next decade.
Another change to the law might interest you: The penalty for failing to take your RMD has historically been one of the largest tax penalties at 50 percent of the amount you should have taken. That penalty was lowered by the authors of the SECURE 2.0 Act, to 25 percent. And for those who take steps to remedy the mistake by taking the RMD in the following year, the penalty will only amount to 10 percent.
Still, there are other reasons to pay attention to the timing of your first RMD. If you’re forced to take two RMDs in one year, you can trigger excessive income taxes that you probably want to avoid.
Some people might be able to avoid the penalty altogether, by filing Form 5359 with the IRS and explaining the reason for the error. Of course, it wouldn’t be a good idea to rely on this method, because the IRS has to accept your reasoning as a reasonable error.
Overall, you do have a bit more wiggle room in taking your first RMD. But we still recommend meeting with us in the year beforehand, so that we can calculate your RMDs correctly to avoid any potential penalties.
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Retirement is a time to enjoy the fruits of your labor, travel, spend time with family, and engage in hobbies. However, financial security remains a crucial aspect of ensuring a stress-free and comfortable retirement. One often overlooked component of financial planning is the annual review of insurance policies. As your circumstances change, so do your insurance needs, making it essential to reassess your policies regularly. 1. Adjusting Coverage to Your Needs Throughout your working years, your insurance coverage likely revolved around protecting your income, your home, and your family’s financial future. However, in retirement, these needs may shift. You may no longer need the same level of life insurance if your children are financially independent, or you may require additional health insurance coverage. An annual review helps you adjust your coverage to better reflect your current situation. 2. Managing Costs and Saving Money Insurance premiums can be a significant expense, especially for retirees on fixed incomes. Reviewing your policies annually allows you to compare costs, seek better deals, and eliminate unnecessary coverage. For example, if your mortgage is paid off, you might need less homeowners’ insurance. Likewise, if you no longer drive frequently, adjusting your auto insurance policy can lead to savings. 3. Ensuring Adequate Health and Long-Term Care Coverage Health care costs often rise with age, making health insurance one of the most critical policies to review. Medicare plans change annually, and your health needs may evolve, requiring adjustments in coverage. Additionally, long-term care insurance should be assessed to ensure it provides sufficient benefits for potential future needs. 4. Protecting Against Emerging Risks As you age, new risks may arise that were not previously considered. Identity theft, cybercrime, and elder financial abuse are growing concerns. Some insurance providers offer policies to protect against these threats. Additionally, liability coverage should be reviewed if you own rental properties, travel frequently, or have substantial assets that require protection. 5. Aligning With Estate Planning Goals Life insurance plays a key role in estate planning, ensuring that your beneficiaries receive financial support and that potential estate taxes are covered. Reviewing your policy helps ensure that it aligns with your estate planning goals and that the designated beneficiaries are up to date. 6. Understanding Policy Changes and Benefits Insurance companies periodically update their policies, benefits, and exclusions. By reviewing your policies annually, you stay informed about changes that may impact your coverage or eligibility for certain benefits. This proactive approach helps prevent surprises when filing a claim. Final Thoughts Being proactive with your insurance policies can help you enjoy peace of mind and make the most of your retirement years.By taking the time each year to assess your coverage, you can make informed decisions that align with your evolving needs and priorities. If you’re unsure about what adjustments to make, consulting with an insurance professional can provide valuable guidance. Schedule an appointment with us to review your insurance needs, and we’ll help you create a solid plan that offers protection throughout your retirement years.
