Born Before 1951? Key Retirement Planning Changes You Should Know

As we approach the end of the year, it’s important for those born before 1951 to remember the rules about withdrawing money from retirement accounts like IRAs (Individual Retirement Arrangements) and other similar plans. The IRS has reminded everyone that there are some new rules starting with 2023 taxes that you should know about.

First, let’s talk about RMDs or Required Minimum Distributions. These are the minimum amounts you must take out of your retirement accounts each year once you reach a certain age. This money counts as taxable income, and if you don’t take it out on time, you might have to pay penalties. Previously, you had to start taking this money out at age 72. However, a new law called the Secure 2.0 Act has changed this age to 73 starting with 2023 taxes. So, if you were born in 1951, you need to take your first withdrawal by April 1, 2025.

It’s a bit different for Roth IRAs. If you have one, you don’t need to take out any money while you’re still living. But, after you pass away, the person who inherits your Roth IRA will need to follow these withdrawal rules.

If you’re part of a workplace retirement plan like a 401(k), these rules apply to you, too. You can usually wait to take out money until you retire, unless you own more than 5% of the company that offers the plan. For specific Roth accounts in these plans, the rules will change in 2024, meaning you won’t have to take out money while you’re still living.

Knowing how much to take out can be tricky. Your IRA trustee, or the person managing your plan, might tell you how much to withdraw, but it’s ultimately your job to make sure you take out the right amount. If you don’t take out enough, there’s a tax penalty, which has been lowered to 25% in 2023 and can go down to 10% if you correct the mistake within two years.

For those who inherited an IRA or retirement plan, there are special rules, especially if the account was inherited after 2019. These rules depend on your relationship to the person who had the account and when they passed away.

We know this can be a lot to take in, so if you have any questions or need help understanding what this means for you, our team is here to assist. Keeping up with these changes is key to managing your retirement funds wisely.