Retirement planning  |  JUly 24, 2023

A Closer Look at RMDs and the New SECURE 2.0 Rules

Understanding the rules for required minimum distributions (RMDs) can help you plan ahead to manage taxes.


Key Insights

  • The SECURE 2.0 Act of 2022 changed the guidelines for RMDs.

  • The new RMD rules offer more flexibility to help people plan for longer careers and longer retirements.

  • In light of the new RMD rules, consider reviewing and updating your retirement plan on your own or with a financial advisor.

Roger Young, CFP®

Thought Leadership Director

Retirement savings accounts offer major tax advantages to help encourage people to save during their working years. Some of these accounts’ rules include required minimum distributions (RMDs) to ensure that pretax savings are eventually withdrawn and taxed. The SECURE 2.0 Act of 2022 changed the guidelines for these RMDs, which now offer more flexibility to help people plan for longer careers and longer retirements.

RMDs are an important reality when it comes to planning your retirement income. Now is a good time to make sure you understand the rules and update your plan accordingly.

Increased Starting Age for RMDs

For retirement accounts that offer the benefit of tax deferral, the government requires investors to make minimum withdrawals each year. For many decades, the first of these RMDs was required by April 1 of the year after you turned 70½, known as the required beginning date. The SECURE 2.0 Act increased the age to 73 in 2023 and established an additional increase that will bring the starting age to 75 by 2033. RMDs continue for the retirement account owner’s lifetime and generally affect the account’s beneficiaries.

Some Retirement Accounts Will No Longer Require RMDs

RMDs are required for all tax-deferred retirement accounts, including Traditional IRAs, SEP-IRAs, and SIMPLE IRAs. The same RMD rules apply to workplace accounts such as 401(k)s and 403(b)s, though these accounts generally allow you to defer distributions while you are still working. Meanwhile, Roth IRAs do not require RMDs for the original account owner.

Starting in 2024, investors with a Roth 401(k) or Roth 403(b) will no longer need to take RMDs. (If an investor is 73 years or older in 2023, however, they still are subject to Roth RMDs in 2023.)

Reduced Penalties for Missed Withdrawals

The new law also changed the penalties for missed withdrawals. Previously, failure to take your RMD (or withdrawing too little or too late) meant you would face a penalty of 50% on the amount not distributed. The SECURE 2.0 Act reduced that penalty to 25%. If you correct the missed RMD in a timely manner, the penalty may be reduced to 10%.

How to Calculate RMDs

Each investor’s RMD amount varies annually—it depends on your current age, the relative age of your spouse,* and the balance in your account as of December 31 of the prior year. (See “How Much Is an RMD for $100,000 in Savings?” for a hypothetical example.) Many investment firms, including T. Rowe Price, will provide your calculated RMD amount for retirement assets held at T. Rowe Price as part of their services. (The IRS offers worksheets for investors who want to make these calculations themselves.)

If you have multiple retirement accounts that are subject to RMDs, you must calculate the RMD for each account. However, you can make the actual withdrawal from any of your individual IRAs that are subject to RMDs, so long as the total withdrawal satisfies the total RMD amount required for that year. (Note that qualified plans, such as a 401(k) plan, require you to take each plan’s RMD from that plan; it’s not possible to aggregate them.)

How Much Is an RMD for $100,000 in Savings?

This table shows what the RMD might be over time for a hypothetical account
starting with $100,000 at age 73.

How Much Is an RMD for $100,000 in Savings?
Age RMD Percentage Beginning Balance RMD Amount
73 3.77% $100,000 $3,774
74 3.92% $102,000 $4,000
75 4.07% $103,880 $4,223
76 4.22% $105,637 $4,457
77 4.37% $107,250 $4,683
78 4.55% $108,721 $4,942
79 4.74% $110,006 $5,214
80 4.95% $111,080 $5,499
81 5.15% $111,916 $5,769
82 5.41% $112,515 $6,082
83 5.65% $112,820 $6,374
84 5.95% $112,832 $6,716
85 6.25% $112,483 $7,030
86 6.58% $111,780 $7,354
87 6.94% $110,692 $7,687
88 7.30% $109,185 $7,970
89 7.75% $107,288 $8,317
90 8.20% $104,910 $8,599
91 8.70% $102,089 $8,877
92 9.26% $98,804 $9,149
93 9.90% $95,035 $9,409
94 10.53% $90,763 $9,554
95 11.24% $86,082 $9,672
96 11.90% $80,994 $9,642
97 12.82% $75,633 $9,697
98 13.70% $69,893 $9,574
99 14.71% $63,938 $9,403
100 15.63% $57,807 $9,032

The illustration shows a hypothetical trajectory where the RMD is withdrawn at the beginning of the year. It assumes a 6% annualized return, and that the individual turns 73 on or after January 1, 2023, but does not qualify for the 75 RMD age that takes effect in 2033. Data are based on IRS Uniform Lifetime Table III, which generally applies unless the person’s spouse is the sole beneficiary and is more than 10 years younger.

Is it better to take your RMD monthly or annually?

You can take your annual RMD as a lump sum or in any combination of payments, as long as you meet the minimum over the course of the year. For investors who plan to use their RMDs as a source of retirement income, a monthly payment may be a good choice. Keep in mind that while you’ll pay the same amount of income tax no matter when you receive the money, delaying your RMD until year-end gives your money more time to grow tax-deferred.

On the other hand, you may prefer to take your RMD early in the year to simplify matters for your beneficiaries if you should die during the year. Whatever method you choose, money you don’t need for spending can be invested in a regular taxable account.

Reducing Your Distribution Amount and Potential Tax Liability Before RMDs Begin

While everyone needs to take RMDs, they don’t represent a major planning challenge for every investor. If you expect to need more than your RMD withdrawals to support you in retirement, you can simply take your RMDs as scheduled. However, some retirees may not need their full RMD amount to cover their spending in retirement, thanks to the availability of other income sources, such as Social Security, a pension, or part-time work, as well as assets set aside in accounts that are not subject to RMDs, such as Roth or taxable accounts. In such cases, it is important to consider the effect of your RMDs on your taxes. Because withdrawals will be taxed as income, you could pay a higher marginal tax rate than you anticipated.

There are three main ways to reduce the distributions and the potential tax liability before you reach the RMD starting age: asset location, Roth conversions, and accelerating your withdrawals. The latter two options look to take advantage of low-income years as a way to minimize the potential income taxes over time. (For additional options for those already past their required beginning date, see “Planning Strategies After RMDs Begin.”)

Asset location

As you plan for retirement, you can facilitate flexibility in your withdrawal plan by investing in accounts with different tax treatments, such as Roth accounts and taxable accounts, in addition to tax-deferred accounts. It’s important to be deliberate about the types of investments you hold in each type of account. For example, you might consider holding slower-growing investments, such as bonds, in tax-deferred accounts that are subject to RMDs, while keeping investments with a higher growth potential, such as stocks, in Roth or taxable accounts that are not subject to RMDs. This asset location strategy generally puts tax-efficient investments in the taxable account, while limiting increases in the RMD amount over time.

Roth conversions

If you don’t expect to need a portion of your retirement savings, you might consider moving those assets into a Roth IRA through a Roth conversion. This technique is most useful during years when you have recorded lower taxable income, as the conversion amount is taxable income, which generally increases your income taxes and may also raise your Medicare premiums.

A Roth conversion not only reduces the balance of your savings that are subject to RMDs, but it also provides your heirs with the benefit of tax-free withdrawals should they eventually inherit those assets. What’s more, the increase in the age at which RMDs start gives many investors more time to plan and execute a conversion strategy while their tax rates are favorable.

Accelerated withdrawals

You may also consider withdrawing funds from your tax-deferred accounts before your required beginning date (but after you turn 59½, to avoid early withdrawal penalties) during years with lower taxable income. This is similar in concept to the conversion strategy but may be easier to implement for people without other assets to cover the tax bill. By withdrawing funds from your retirement account up to the maximum income limit of your current tax bracket, you may reduce future RMDs and limit the impact of potentially higher tax rates in the future. This strategy may also allow you to delay claiming your Social Security benefits (to as late as age 70), which would result in higher annual benefits.

Your RMDs are an important component of your retirement income plan—after all, supporting yourself in retirement is the very purpose you set this money aside for in the first place. In light of the new RMD rules, consider reviewing and updating your retirement plan on your own or with a financial advisor. The recent rule changes may provide new opportunities to plan your RMDs to maximize your tax efficiency.

* For a person whose spouse is more than 10 years younger, the calculation uses a different life expectancy table.

Important Information

This material has been prepared by T. Rowe Price for general and educational purposes only. This material does not provide fiduciary recommendations concerning investments, nor is it intended to serve as the primary basis for investment decision-making. T. Rowe Price, its affiliates, and its associates do not provide legal or tax advice. Any tax-related discussion contained in this material, including any attachments/links, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or tax professional regarding any legal or tax issues raised in this material.

All investments involve risk, including possible loss of principal.

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Next Steps

  • Make the most of your RMD.

  • Contact a Financial Consultant at 1-800-401-1819.