[Note: This Letter is an educational publication designed to provide a general background for understanding IRAs. It is not a substitute for professional tax advice. Readers considering the implementation of an IRA are encouraged to consult with a qualfied financial advisor or tax professional. This Letter references tax rates and IRA parameters for 2023. If you are reading this after 2023 then new rates and parameters may apply. You can visit the Internal Revenue Services (IRS) website at irs.gov. IRS Publications 590-A (Contributions to Individual Retirement Arrangements) and 590-B (Distributions from Individual Retirement Arrangements) cover IRAs and they are usually updated on an annual basis.]
The Tax Reform Act of 1986 established Required Minimum Distributions (RMDs) from qualified retirement accounts beginning in the year the individual owner reached age 70 1/2. In 2019, the original SECURE Act increased it to 72 (effective in 2020). Finally, the recent SECURE Act 2.0 increased the age further which is what I am going to cover today.
Traditional Individual Retirement Accounts (IRAs) (or Traditional Rollover IRAs which are essentially the same thing) are the most common type of qualified retirement account where the owner is required to take RMDs. RMDs do not affect original Roth IRAs since original Roth IRA holders are not required to take distributions during their lifetime. IRS Publication 590-B notes the following:
You aren't required to take distributions from your Roth IRA at any age. The minimum distribution rules that apply to traditional IRAs don't apply to Roth IRAs while the owner is alive. However, after the death of a Roth IRA owner, certain of the minimum distribution rules that apply to traditional IRAs also apply to Roth IRAs as explained later under Distributions After Owner's Death.
The assets in Roth IRAs have already been taxed as income, whereas the assets in Traditional IRAs have not. The Internal Revenue Service (IRS) wants Traditional IRA distributions to begin during the original owner’s latter years so that these funds can start to be taxed.
New Starting Age Requirements
Starting this year (2023), qualified retirement account holders will not have to start taking RMDs until age 73 and account holders turning 73 in 2033 and subsequent years will not have to start until age 75. Another way to look at this is as follows:
born in 1950 or earlier = start at age 72
born between 1951 and 1959 = start at age 73
born in 1960 or later = start at age 75
Individuals turning 72 in 2023 who were previously required to start their RMD this year will not have to start until 2024. Thus, no retirement account owners will have to start taking their first RMD in 2023.
Joshua