Secure Act 2.0 increases age for RMDs ..impacts?

[JackJester]

Hello. I just read about the passing of this act and don’t know much about it. The news says: “It would also increase the starting age for required minimum distributions to 73 in 2022, 74 in 2029 and 75 by 2032, up from the current 72.”


I will be 55 in July this year 2022 and I am retiring in late July as well. I haven’t figured out when I will begin converting my 401K to Roth (to reduce RMD taxes)..I know there are calculator tools mentioned on this forum that I plan to explore, but I wonder if this new act should impact my decision for Roth conversions. So, in the year 2042 I’ll turn 75, thus I will not have to take RMDs until age 75. While this seems like not a big difference from current RMDs at age 70.5, I wonder does this change anything? Not sure if it matters, but we're 70/30 AA and plan to stay that way forever; most of our investments are pre-tax 401K [$2.5 mil], and we will rely on them to cover 90% of expenses beginning 2025 for the duration. My life expectancy per the actuarial is 81, but given family history I’m thinking 85 (similar for DW). Blow the dough to $0 is the plan.

 

[Graybeard]

Never mind, I see there is a thread on this and while I thought it might effect me it appears I missed 73 by a year, turn 72 this year.

 

[RunningBum]

For me, I'm trying to fully convert my Roth before I start SS, since there's a reasonable chance I'll be in the SS tax hump, which I really want to avoid. So pushing out the RMD doesn't help me if I get conversions done by 70. I guess if I still have some tIRA money, I can convert it before 75 rather than withdraw it.

 

[Montecfo]

Runningbum,

SS tax "hump"?

Just want to make sure I'm not missing something.

To the OP, it's just more time to do Roth conversions, if that makes sense. A high class opportunity.

 

[RunningBum]

Runningbum,

SS tax "hump"?

Just want to make sure I'm not missing something.

If your SS benefit is not fully taxed, an extra $1000 of income (from a Roth conversion or RMD, perhaps):
- is taxed at 12% ($120 tax)
- makes another $850 of SS taxed ($102 tax)
- pushes $1850 Qualified Divs into being taxed ($277.50 tax)
For a total of $499.50, tax on that $1000. 49.95% marginal tax rate.

Luckily that hump isn't too wide so you won't have tens of thousands of dollars taxed at that rate. Kitces has an explanation and some examples.

https://www.kitces.com/blog/the-tax...ity-benefits-as-a-marginal-tax-rate-increase/

Given that the SS tax limits for 50% and 85% are fixed and not indexed for inflation, I probably will have my SS fully taxed, but it's possible I won't.

 

[Montecfo]

If your SS benefit is not fully taxed, an extra $1000 of income (from a Roth conversion or RMD, perhaps):
- is taxed at 12% ($120 tax)
- makes another $850 of SS taxed ($102 tax)
- pushes $1850 Qualified Divs into being taxed ($277.50 tax)
For a total of $499.50, tax on that $1000. 49.95% marginal tax rate.

Luckily that hump isn't too wide so you won't have tens of thousands of dollars taxed at that rate. Kitces has an explanation and some examples.

https://www.kitces.com/blog/the-tax...ity-benefits-as-a-marginal-tax-rate-increase/

Given that the SS tax limits for 50% and 85% are fixed and not indexed for inflation, I probably will have my SS fully taxed, but it's possible I won't.

Yes I'm assuming 85 pct but I hear you.

 

[G-Man]

Found this article on CNN about the Secure Act 2.0

https://www.cnn.com/2022/04/06/investing/retirement-savings-401k-investing-roth-ira/index.html

 

[Helen]

Found this article on CNN about the Secure Act 2.0

Imagine having to work until age 75 Especially if it's not in a white collar type of job.

 

[TheWizard]

Imagine having to work until age 75 Especially if it's not in a white collar type of job.

Deciding how long to continue working is a function of a few different things, including your wealth level and how your work compels you.
I don't see much connection to the SECURE 2.0 act.

In fact, the 401(k) auto-enrollment and ramp-up provisions will make it more likely that a certain subset of workers will be able to retire a few years earlier than they might otherwise...

 

[jollystomper]

Hello. I just read about the passing of this act and don’t know much about it. The news says: “It would also increase the starting age for required minimum distributions to 73 in 2022, 74 in 2029 and 75 by 2032, up from the current 72.”

The article I saw on Barrons had the years slightly different:

Raising the age at which seniors must take required minimum distributions, or RMDs, from their retirement savings accounts to 73 from 72, effective next Jan. 1. The bill will raise the age to 74 starting in 2030 and to 75 starting in 2033.

From this is seems if one was born in 1958 or later, RMDs will not take effect until one turns 75 in 2033 or later.

 

[Gumby]

The article I saw on Barrons had the years slightly different:


From this is seems if one was born in 1958 or later, RMDs will not take effect until one turns 75 in 2033 or later.

You are off by a year. This is the relevant text of the bill passed by the House.

SEC. 106. INCREASE IN AGE FOR REQUIRED BEGINNING DATE FOR MANDATORY DISTRIBUTIONS.
(a) In General.—Section 401(a)(9)(C)(i)(I) of the Internal Revenue Code of 1986 is amended by striking “age 72” and inserting “the applicable age”.

(b) Spouse Beneficiaries; Special Rule For Owners.—Subparagraphs (B)(iv)(I) and (C)(ii)(I) of section 401(a)(9) of such Code are each amended by striking “age 72” and inserting “the applicable age”.

(c) Applicable Age.—Section 401(a)(9)(C) of such Code is amended by adding at the end the following new clause:


“(v) APPLICABLE AGE.—

“(I) In the case of an individual who attains age 72 after December 31, 2022, and age 73 before January 1, 2030, the applicable age is 73.

“(II) In the case of an individual who attains age 73 after December 31, 2029, and age 74 before January 1, 2033, the applicable age is 74.

“(III) In the case of an individual who attains age 74 after December 31, 2032, the applicable age is 75.”.

Source: https://www.congress.gov/bill/117th...54/text#toc-HB9B18B5F05D04C1F8F7B67AC535C6314

The first day you could "attain age 74 after December 31, 2032" is 1/1/2033, which means you were born on 1/1/1959.

So, as I noted in the earlier thread on this

- if you were born on or after January 1, 1959, your RMDs don't start until the year you turn 75.
- if you were born between January 1, 1957 and December 31, 1958, RMDs must begin the year you turn 74.
- if you were born between January 1, 1951 and December 31, 1956, RMDs must begin the year you turn 73.
__________________

 

[Gumby]

The companion EARN Act was unanimously voted out of the Senate Finance Committee today. It is expected to be combined with the RISE & SHINE Act and then voted on in the Senate. Should it pass, there are a few differences between the House and Senate bills that will need to be ironed out in reconciliation. One of the most notable is when the RMD requirement gets bumped to 75.

Here is a summary of the EARN Act provisions:

https://www.finance.senate.gov/imo/media/doc/EARN Act section by section summary1.pdf

See also:

https://401kspecialistmag.com/secur...earn-acts-unanimous-committee-approval-today/

 

[Helen]

Does anyone understand the reasons behind raising the RMD age?

Edit to add:

12. Surviving spouse election to be treated as employee. This provision
would allow a surviving spouse to elect to be treated as the deceased employee for
purposes of the required minimum distribution rules. The provision would be
effective after 2023.

Yikes, I didn't realize a surviving spouse fell under the ten-year rule.

 

[Alex The Great]

“It would also increase the starting age for required minimum distributions to 73 in 2022, 74 in 2029 and 75 by 2032, up from the current 72.”

I'm also 55. I believe by 2045 RMD age will be even higher. But I don't care about it. What I care about is full retirement age. It is the time when I plan to start SS. Currently, it is 70 but very likely it will be moving up as well. By this age, the goal is to accomplish all Roth conversions while in lower tax bracket. Nothing to do with RMD age here.

 

[lauradrops]

Does anyone understand the reasons behind raising the RMD age?

Edit to add:



Yikes, I didn't realize a surviving spouse fell under the ten-year rule.

Surviving spouse does not fall under the 10 year rule, only for non spouse.

Raising the RMD age allows the IRA to grow untaxed longer. It doesn't affect anyone who still wants to take it before 75 (provided you're at least 59 1/2), but it is nice for those who don't need to take what the RMD forces you to take.

 

[Helen]

Surviving spouse does not fall under the 10 year rule, only for non spouse.

Raising the RMD age allows the IRA to grow untaxed longer. It doesn't affect anyone who still wants to take it before 75 (provided you're at least 59 1/2), but it is nice for those who don't need to take what the RMD forces you to take.

Thank you, I wrongly assumed the age 75 rule some how benefitted the government in terms of taxation. I'm glad to see it is to benefit the individual.


I'm still confused as to what this means if spouses currently don't have to follow the ten year rule for RMDs.

12. Surviving spouse election to be treated as employee. This provision
would allow a surviving spouse to elect to be treated as the deceased employee for
purposes of the required minimum distribution rules. The provision would be
effective after 2023.

 

[lauradrops]

Thank you, I wrongly assumed the age 75 rule some how benefitted the government in terms of taxation. I'm glad to see it is to benefit the individual.


I'm still confused as to what this means if spouses currently don't have to follow the ten year rule for RMDs.

Not sure where that quote is pulled from, it appears to be part of an explanation of one of the ways to take a spousal IRA. Here is an explanation from the IRS website for spousal IRA.

"Inherited from spouse. If a traditional IRA is inherited from a spouse, the surviving spouse generally has the following three choices:

Treat it as his or her own IRA by designating himself or herself as the account owner.

Treat it as his or her own by rolling it over into a traditional IRA, or to the extent it is taxable, into a:
a. Qualified employer plan,
b. Qualified employee annuity plan (section 403(a) plan),
c. Tax-sheltered annuity plan (section 403(b) plan),
d. Deferred compensation plan of a state or local government (section 457(b) plan), or
3. Treat himself or herself as the beneficiary rather than treating the IRA as his or her own.

If a surviving spouse receives a distribution from his or her deceased spouse's IRA, it can be rolled over into an IRA of the surviving spouse within the 60-day time limit, as long as the distribution is not a required distribution, even if the surviving spouse is not the sole beneficiary of his or her deceased spouse's IRA."

 

[jollystomper]

The companion EARN Act was unanimously voted out of the Senate Finance Committee today. It is expected to be combined with the RISE & SHINE Act and then voted on in the Senate. Should it pass, there are a few differences between the House and Senate bills that will need to be ironed out in reconciliation. One of the most notable is when the RMD requirement gets bumped to 75.

Here is a summary of the EARN Act provisions:

https://www.finance.senate.gov/imo/media/doc/EARN Act section by section summary1.pdf

See also:

https://401kspecialistmag.com/secur...earn-acts-unanimous-committee-approval-today/

The first document you linked to has this:

1. Increase in age for required beginning date for mandatory
distributions. Tax-preferred retirement savings plans and IRAs are generally
required to begin distributions once the account owner reaches age 72. This
provision would increase the age to 75, effective after 2031.

Someone born on 1/1/1957 turns 75 on 1/1/2032. So it would seem that those born 1/1/1957 and later have RMDs start at age 75, correct? If so that is a 2 year improvement over what was stated earlier in this thread.

 

[Gumby]

The first document you linked to has this:



Someone born on 1/1/1957 turns 75 on 1/1/2032. So it would seem that those born 1/1/1957 and later have RMDs start at age 75, correct? If so that is a 2 year improvement over what was stated earlier in this thread.

Yes, the Earn Act provision appears to be two years quicker to ramp up to 75 than the Secure 2.0, but who knows what eventually will come out of conference? They could choose either House or Senate timetable, or split the difference.

 

[corn18]

I ran the scenario through my model and it didn't make a difference at all. The reason is I am just shy of the 22% tax bracket with my COLA pension and SS starting @ 70. So I will either do small Roth conversions to the top of the 12% bracket from 72-75 or I will take an RMD that fills up the 12% bracket. In my case, that is a wash.

 

[cathy63]

... I'm still confused as to what this means if spouses currently don't have to follow the ten year rule for RMDs.

12. Surviving spouse election to be treated as employee. This provision
would allow a surviving spouse to elect to be treated as the deceased employee for purposes of the required minimum distribution rules. The provision would be
effective after 2023.

I couldn't find the actual text of the bill to verify this, but to me it sounds like they are trying to close a hole from the SECURE Act where inherited 401ks and IRAs are treated differently. If a spouse inherits an IRA, he/she can treat it as his/her own account and begin taking RMDs upon reaching age 72. I believe if a spouse inherits a 401k (or other tax deferred employer account), he/she has to begin taking RMDs when the employee would have reached age 72. In the case where the surviving spouse is younger, this difference could be significant.

 

[camfused]

Has anyone seen any indication of whether the RMD tables will be used sort of as is, just change the age start date, or will the table be adjusted?

For instance, with the current SA 1.0, I believe that at a start age of 72, the divisor is 27.4, and at age 75 it is 24.6. With SA 2.0, will age 75 have a divisor of 27.4?

Thanks

 

[audreyh1]

The RMD tables were recently adjusted, independently of the raised RMD age to 72. The new table update occurred maybe a year later. Until then the old table was used at the starting age of 72 instead of 70.5.

I would guess that they would use this new table as is, using the starting age, not changing the table.

The RMD tables are revised rarely. It’s based on US life expectancy, which ironically dropped quite a bit shortly after the RMD table was finally updated.

 

[SecondCor521]

Has anyone seen any indication of whether the RMD tables will be used sort of as is, just change the age start date, or will the table be adjusted?

For instance, with the current SA 1.0, I believe that at a start age of 72, the divisor is 27.4, and at age 75 it is 24.6. With SA 2.0, will age 75 have a divisor of 27.4?

Thanks

I think they're independent.

Since the IRS just updated the tables this year, and those tables are based on life expectancy, I don't think those will change again soon.

If SECURE 2.0 passes (and it may or may not), I think it's just the RBD that changes. Well, along with all the other changes in the bill.

So to answer your question exactly, even if SECURE 2.0 passes, I think the age 75 divisor will be 24.6.

 

[badatmath]

When it asks you your age, your age as of when? 12/31 of the prior year when you look at your balance?