Required Minimum Distribution age change effective January 1, 2023

The secure ACT 2.0 was passed by Congress on December 29th last year and it includes sweeping change for all types of retirement accounts including 401k, 403b, SEP IRA, Simple IRA, Roth and Traditional IRAs. Many of the changes don’t take effect until 2024 and beyond, but there is one BIG item that is effective immediately.

If you own a Traditional IRA you are subject to required minimum distributions, or RMDs. This is the amount the IRS requires you take out of your IRA each year. This amount is calculated using the value of your IRA on December 31st of the previous year and a factor based on your age that is set by the IRS. In the past your RMD began at age 70.5, and then this rule was updated to age 72. Well as of January 1, 2023 the RMD age is now 73.

What does this mean to you? If you are already taking funds out of your Traditional IRA because you are subject to the RMD requirements, then you need to continue this. But if you have not started taking out funds from your Traditional IRA and you are not yet 73 then you can leave the funds in your Traditional IRA, no required minimum distributions are needed.

What if you turn 73 sometime in 2023?  Then you are required to take your RMD by December 31st, 2023.

How much is it?

For example, if your IRA is $100,000 and you are age 73 your distribution period is 24.7, the math is

$100,000 / 24.70 = $4,048.58

Your distribution period depends on more than just your age and it changes each year, so it is great idea to get your tax advisor or financial advisor to calculate this number for you. Your RMD also applies to ALL of your traditional IRAs, so make sure you count the funds in all of those accounts and 401ks and 403bs that haven’t been rolled over as well.

Are these distributions taxable?

Yes indeed. You may either settle up with the IRS when you do your taxes for 2023 or you can have withholding done when you take out the funds.

Does this apply to Roth IRAs?

No, you can leave those funds invested as long as you like.