SECURE 2.0 and Required Minimum Distributions in 401(k) Plans: What Plan Sponsors Need to Know
SECURE 2.0 brought significant changes to retirement planning and distributions, including updating the Required Minimum Distribution (RMD) requirements. As background, RMDs are the minimum amounts that individuals who attain their “required beginning date” must withdraw from their retirement accounts each year. SECURE 2.0 introduced several changes to the rules on RMDs including the following:
1. Delaying the Age for RMDs
The age for starting RMDs has been raised from 72 to 75 years. This increased age provision phases in over time, with the final adjustment taking effect in 2033. The change recognizes that many Americans are working and saving for retirement for longer periods, and the later distribution requirement allows for more flexibility in managing retirement assets.
2. No RMDs from Roth Accounts
Starting with the 2024 calendar year, participants are no longer required to take RMDs from their retirement plan Roth accounts. This change aligns the RMD rules for Roth accounts in retirement plans with the rules applicable to Roth IRAs.
3. Decreased Penalties for Missed RMDs
The excise taxes for failing to take an RMD have been decreased from 50% to 25% of the RMD amount not taken. The penalty may be further reduced to 10% if the RMD is corrected in a timely manner.
Conclusion
SECURE 2.0 continues the significant legislative changes made to the RMD rules that began with the original SECURE Act. The IRS has provided some guidance and transition relief to help implement the changes made by the SECURE Act and SECURE 2.0, but more guidance is expected in the future.