With a Cash Balance Plan, You Can Do Even MoreJune 19, 2023
Understanding Required Minimum Distributions (RMDs)
If you have a tax-deferred retirement account, such as a 401(k) or IRA, it’s important to understand the required minimum distributions (RMDs). RMDs are the minimum amount you must withdraw from your retirement account each year once you reach a certain age. Failure to take RMDs can result in a penalty of up to 50% of the amount you were supposed to withdraw.
The SECURE 2.0 Act and Changes to RMDs
The SECURE 2.0 Act, which was recently passed by Congress, raises the age at which you need to take RMDs. Previously, RMDs had to begin at age 72, but under the new law, RMDs don’t have to start until age 75 for those born after June 30, 1949. This change gives retirees more time to save and invest in their retirement accounts.
Rules to Follow for RMDs
While the SECURE 2.0 Act provides some relief for retirees, there are still rules to follow when it comes to RMDs. Here are a few things to keep in mind:
- You must begin taking RMDs by April 1st of the year following the year in which you turn 72 (or 75 under the SECURE 2.0 Act).
- Your RMD is calculated based on your life expectancy and the balance in your retirement account.
- If you have multiple tax-deferred retirement accounts, you must calculate your RMD separately for each account, but you can take the total amount from one or more of your accounts.
- You can withdraw more than your RMD if you choose, but keep in mind that the excess amount won’t count towards next year’s RMD.
- RMDs are taxed as ordinary income, so be prepared for the tax implications of taking distributions from your retirement account.
In conclusion, if you have a tax-deferred retirement account, it’s crucial to understand the rules around required minimum distributions (RMDs). While the SECURE 2.0 Act raises the age at which you need to take RMDs, there are still important rules to follow. Contact Business Benefits Consultants to learn more about RMDs and how we can help you plan for a successful retirement.
Contact Business Benefits Consultants to learn more about how a cash balance plan can help you achieve your retirement goals.