If you’re approaching your 70s, you’ve likely heard about Required Minimum Distributions (RMDs). The governing rules have changed significantly in recent years. With the SECURE Act 2.0 now fully in effect, it’s important to understand where the rules stand today and what they mean for your retirement future.
A Golden Age
For decades, Americans were required to begin taking RMDs at age 70½. The RMD starting age has increased twice since 2018, and with the SECURE Act 2.0, RMDs start the calendar year you turn age 73 (for everyone born prior to 1960).
If you turn 73 this year, that means 2026 is your first RMD year. You’ll have until April 1, 2027 to take your first distribution. Before you assume delaying is the smart move, there’s an important catch to consider.
While you can delay your first RMD, doing so means you’d be taking two RMDs in the same tax year. Your first RMD (for 2026) would be due by April 1, 2027, and your second RMD (for 2027) would be due by December 31, 2027.
Two distributions in one calendar year means double the taxable income, which could affect your tax brackets, the tax you pay on investments, social security taxes and even your Medicare premiums.
For many people, it makes sense to take that first RMD before December 31 of the year they turn 73, spreading the impact across two calendar years. However, the best choice depends on your specific situation and overall financial plan. Which is why this kind of decision benefits from professional guidance.
More Breathing Room
Missing an RMD used to carry significant consequences, but the SECURE Act 2.0 reduced that penalty considerably. The new base penalty is 25% of the amount you failed to withdraw. Even better, if you catch the mistake and correct it quickly (filing Form 5329 and taking the missed distribution within the correction window), the penalty drops to just 10%.
While this reduction provides a safety net, the goal should always be to complete your RMDs accurately and on time. Working with an advisor can help ensure you stay on track year after year.
The SECURE Act 2.0 brought many changes to the RMD system, and it isn’t done yet. The law includes a future provision that will push the RMD starting age to 75 beginning in 2033. If you’re not yet in your 60s, this change will likely apply to you, giving you additional time for tax-deferred growth.
Be aware that more years of tax-deferred growth means larger account balances and potentially larger RMDs when they do begin. For some individuals, this creates opportunities for proactive planning in your 60s and early 70s. There are many strategies that give you more control over your taxable income.
We’re Here to Help
RMD planning isn’t just about taking a distribution by a deadline. It’s about integrating those required withdrawals into your broader tax strategy, coordinating them with charitable giving goals, considering their impact on Medicare premiums, and ensuring they align with your long-term financial plan.
If you’re turning 73 this year or approaching that milestone, now is the time to review your RMD plan with a professional. A qualified advisor can help you understand your specific distribution requirements and avoid costly mistakes. We specialize in building strategies that minimize taxes while keeping you in full compliance.
Give us a call at 952-460-3265. Let’s sit down and create a strategy that works for your unique situation.
