sRetired savers have seen how a new law has changed the rules about how and when they can withdraw their money, through the RMD, which means they need to follow some required minimum distribution rules.
For example, individual retirement accounts or 401(k) plans, which are tax-advantaged accounts for the saver’s golden years, carry this type of rule.
An RMD forces an individual to withdraw money from their account after they reach a certain age, for the purpose of raising funds Income tax revenue, which means they’ll have to pay taxes on those savings, which prevents them from using their accounts as tax shelters.
President Biden has signed a bill affecting retired savers
Last Thursday, just before the end of the year, President Joe Biden signed a $1.7 trillion legislative package, called Secure 2.0Among many measures, some affect retired savers.
For example, the required minimum age for distribution has been raised to 73, from 72 currently, but from 2033 onwards, the minimum age will be raised to 75.
Another change is that RMDs are now phased out of Roth 401(k), which means that starting in 2024, those who have invested in retirement plans like these won’t have to take an RMD.
With the third important change coming from the reduction of tax penalties for the risk management department.
Previously the tax penalty was 50% of the RMD amount an individual failed to withdraw, but now it has been reduced to 25% and can even go down to the 10% mark.