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SECURE 2.0 Raises the Required Minimum Distribution Age — And Some Questions

May 26, 2022

Organizations that offer their employees 401(k) and 403(b) plans may want to keep track of key legislative changes looming on the horizon. Recently, the House of Representatives introduced a bipartisan bill designed to help more Americans covered by employer-sponsored retirement plans save more money.  


Titled H.R. 2954 “Securing a Strong Retirement Act of 2022,” and informally known as SECURE 2.0, the bill includes several proposals that impact employer-sponsored retirement planning. We’ll be addressing the key changes over the next series of articles. But for now, let’s focus on the provision that ultimately would raise the required minimum distribution age to 75, and what that means for employees. 


The required minimum distribution (RDM) refers to the smallest amount individuals must withdraw from their tax-deferred retirement accounts every year after a certain age. When money is put into a retirement account such as a 401(k), that money is tax-deferred. As such, employees don’t pay taxes on any contributions and earnings until they make a withdrawal from their 401(k). Once withdrawals are made, that money becomes taxable income. 


As currently written, the law requires employees with a 401(k) or 403(b) to withdraw money every year from their accounts when they turn 72 (or 70 ½ if they were born before July 1, 1949). Under SECURE 2.0, however, the yearly mandatory withdrawal would ultimately not kick in until the employee turns 75. There is a phasing in of this increased age limit over several years. Any extra time that allows employees with 401(k)s and 403(b)s to avoid tax liabilities longer, saving them more money, is a benefit. 


Now that SECURE 2.0 has passed through the House, employers are advised to pay close attention to the bill and its impact on retirement benefits. Explaining these changes and their implications to employees will be equally important. 


As always, StoneKimbro is here to help organizations and their staff understand new provisions like these, and made well informed decisions for everyone involved. If you have questions about SECURE 2.0 or retirement planning in general, don’t hesitate to reach out to me directly.