At What Age Does RMD Stop?
The past few years have been shaky in the retirement savings landscape, but lawmakers have taken great strides to aid seniors in saving a greater amount for retirement and holding on to their savings for longer. New legislation was passed at the end of 2022, placing new rules for required minimum distributions (RMDs) for retirement savings accounts. You may be wondering at what age does RMD stop, in addition to when it starts. Let’s dive into a simplified explanation.
What is an RMD?
Retirement accounts grow with no taxes due until you withdraw money as income, but the government doesn’t allow those funds to be tax-deferred forever. A Required Minimum Distribution (RMD) is the amount of money the IRS says you must take from these accounts each year once you reach a specific age. The RMD amount is determined by dividing the account’s prior year-end Fair Market Value by a life expectancy factor published by the IRS. If you have multiple accounts, you will need to calculate the RMD for each account but may be able to withdraw the total from just one account.
We want to note that RMDs must be taken from most types of IRAs and retirement accounts, but not from Roth IRAs or Roth 401(k) plans.
At What Age Does RMD Start in 2023?
The original SECURE Act of 2019 extended the RMD age from 70.5 to 72. At the end of 2022, congress approved a massive bill that includes the SECURE Act 2.0 legislation, bumping up the RMD age to 73 for 2023. When you turn 73, you must take your RMD by April 1st of the following year. You are then required to take your RMDs by December 31st each year. While the RMD starting age has increased twice in the past three years, it is not set to increase again until 2033.
At What Age Does RMD Stop?
At what age do RMDs stop? Simply put, they don’t! Once you start taking RMDs, there is no stopping age. You must continue making withdrawals each year, even if you don’t need the income.
If you are in a position where you have excessive extra income, you may consider making a Qualified Charitable Distribution (QCD). With a QCD, your custodian sends money directly from your retirement account to a charity of your choice. This both satisfies the RMD requirement and prevents your donation from counting toward your Adjusted Gross Income. This can be an excellent way for charitable-minded seniors to make a difference in the community.
What are RMD Penalties?
You may be thinking, “What happens if I don’t take a withdrawal when I’m supposed to?” Unfortunately, steep penalties are in place to prevent people from circumventing this law, but recent legislation is making it a little less daunting.
As of 2022, there was a 50% tax penalty on missed RMDs. That has been lowered to a 25% penalty. If you miss an RMD deadline, don’t panic! It will likely be advisable for you to withdraw the required amount as soon as possible. A tax professional can help you file the necessary forms to potentially reduce or even eliminate your penalty.
Gain an Understanding of Your Future Finances
The ins and outs of retirement savings accounts can be challenging to navigate on your own. To better understand your finances and long-term planning, we suggest working with our team of experienced financial professionals. Contact DeWitt & Dunn Financial Services today to set up a free consultation, or sign up for our video series to learn more.