Quiz: Do You Know the RMD Rules for 2023?

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Your client turns 72 in 2023. Does she need to begin taking required minimum distributions this year?

a. Yes

b. No

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b. No

Secure 2.0 raised the starting age for RMDs to 73 for those turning 73 in 2023 and beyond. Beginning in 2033, the age to commence RMDs increases to 75. Much of the confusion surrounding whether those turning 72 in 2023 arises from the fact that Secure 2.0 was passed so late in 2023.

Due to the late passage of these new rules, many custodians had already mailed out RMD notices to account holders indicating that they needed to start RMDs in 2023 if they were turning 72. There were some opportunities to return or “reclassify” their RMDs taken in error, and the deadline for this was Sept. 30.

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If your client was taking RMDs before Jan. 1, 2023, is he affected by the changes contained in Secure 2.0?

a. Yes

b. No

c. Yes, the new rules change everything.

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b. No

For those clients already taking RMDs before 2023, the new rules don’t have any impact. These clients must continue to take them. This includes not only clients taking an RMD based on their own age and retirement account totals, but also those taking RMDs from an inherited individual retirement account before 2023.

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Under Secure 2.0, are there no longer RMDs for Roth 401(k) and other qualified Roth accounts? Does this include Roth accounts for which participants had previously been taking RMDs?

a. Yes, but this will not be effective until 2024.

b. No, nothing changes with Roth account RMDs.

c. Those taking RMDs from qualified Roth accounts must continue to do so even under the new rules.

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a. Yes, but this will not be effective until 2024.

Under the new rules, qualified Roth accounts will now be on a par with Roth IRAs in terms of required minimum distributions. Those who had been required to take Roth account RMDs can now stop taking them.

This change eliminates one reason that many with a Roth 401(k) might have automatically decided to roll the account to a Roth IRA when leaving an employer because of the RMD issue. Clients can now look at investment options and other issues as has been the case with a traditional 401(k) or other traditional qualified plan accounts.

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Along with the increased age for RMDs, the age to start taking qualified charitable distributions from a traditional IRA also increased to 73.

a. True

b. False

c. False. While there are overlaps between QCDs and RMDs, the rules and starting ages are different.

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c. False, while there are overlaps between qualified charitable distributions and RMDs, the rules and starting ages are different.

The starting age for qualified charitable distributions will remain at 70.5 under Secure 2.0. Withdrawals are capped at $100,000 for 2023 but beginning in 2024 are indexed for inflation. Withdrawals are made tax-free from the account, although the qualified charitable distribution is not an itemized deduction for income tax purposes.

Qualified charitable distributions can be used to satisfy some or all of clients’ RMD requirements, and qualified charitable distributions taken will reduce the balance in clients’ traditional IRA accounts, reducing future RMDs from the account.

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QCDs can be used to satisfy clients’ traditional IRA RMD requirements. However, there are rules on the timing of QCDs versus other account distributions during the year.

True

False

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True

While qualified charitable distributions can be used to satisfy some or all of clients’ traditional IRA RMD requirements for a given year, the timing of qualified charitable distributions relative to all distributions matters in terms of the taxes.

Essentially, if a client were to take some or all of her RMD before taking distributions designated as qualified charitable distributions, those prior distributions would remain as taxable distributions and would have satisfied some or all of the RMD for the year. Only to the extent that the client still had an RMD requirement outstanding would some or all of the qualified charitable distributions serve as a non-taxed RMD.

If clients want to use qualified charitable distributions to take RMDs with no taxes, be sure they take the qualified charitable distributions early in the process before the RMD has been satisfied with other distributions.

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Under Secure 2.0, are there rule changes that can help a surviving spouse taking RMDs from a late spouse’s accounts?

a. No, the rules for RMDs from a deceased spouse’s account have not changed.

b. Yes, the rules have eliminated RMDs from a deceased spouse’s accounts altogether.

c. Yes, the new rules offer some new options that could be beneficial to a surviving spouse.

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c. Yes, the new rules offer some new options that could be beneficial to a surviving spouse.

Under rules set forth in Secure 2.0, there are some favorable changes that could be beneficial to clients who are surviving spouses taking RMDs from a late spouse’s account.

One change involves the ability to use the more favorable Uniform Lifetime Table versus the Single Life Expectancy Table to calculate the RMD. This change will generally result in a lower RMD amount, which means lower taxes and the ability to stretch the spouse’s account for longer.

The other significant change is in the required beginning date for the surviving spouse. This can now be delayed until deceased spouses would have reached the age at which RMDs were required to have begun if they had lived, 73 or 75 depending upon their birth year. In the case where the deceased spouse was younger, this allows the surviving spouse to delay taking RMDs.

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Qualified longevity annuity contracts are a way to defer savings in an IRA or employer-sponsored retirement account until later in retirement. Does this have any bearing on clients’ RMDs?

a. No, this is just an added feature to these retirement plans.

b. Yes, money diverted to a QLAC is exempt from RMDs until payments begin on the qualified longevity annuity contract.

c. QLACs allow RMDs to be deferred, but the amount that can be diverted to a QLAC is capped at $50,000.

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b. Yes, money diverted to a QLAC is exempt from RMDs until payments on the contract begin.

QLACs allow money in an IRA or qualified retirement account to be used to purchase the contract and defer payments to as long as to age 85. The maximum amount that can be used for a QLAC is $200,000, an increase from the prior limits as a result of Secure 2.0.

Money deferred into a QLAC is exempt from RMDs until it is annuitized or distributions are taken. This can be a significant tax benefit. Additionally, a QLAC can serve as a safety net to ensure there is an extra amount available to clients later in retirement to help to not outlive their assets.

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After the Secure Act, Secure 2.0 made drastic additional changes to how non-eligible beneficiaries must take distributions from inherited IRAs.

a. True

b. False

c. False, while there were some adjustments, with some still pending, the basics of the rules for inherited IRAs are the same as those that went into effect starting in 2020 for non-eligible beneficiaries.

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c. False, while there were some adjustments, with some still pending, the basics of the rules for inherited IRAs are the same as those that went into effect starting in 2020 for non-eligible beneficiaries.

The original Secure Act legislation eliminated the stretch IRA for IRAs inherited by non-eligible beneficiaries, who are most non-spousal beneficiaries. These beneficiaries must still withdraw the entire account balance within a 10-year timeframe.

The final IRS rules on RMDs pertaining to those subject to the 10-year rule for inherited IRAs have been delayed until 2024. In the meantime, there will be no penalties for RMDs not taken from these accounts in 2021 and 2022.

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Quiz: Do You Know the RMD Rules for 2023?

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Your client turns 72 in 2023. Does she need to begin taking required minimum distributions this year?

b. No

If your client was taking RMDs before Jan. 1, 2023, is he affected by the changes contained in Secure 2.0?

b. No

Under Secure 2.0, are there no longer RMDs for Roth 401(k) and other qualified Roth accounts? Does this include Roth accounts for which participants had previously been taking RMDs?

a. Yes, but this will not be effective until 2024.

Along with the increased age for RMDs, the age to start taking qualified charitable distributions from a traditional IRA also increased to 73.

c. False, while there are overlaps between qualified charitable distributions and RMDs, the rules and starting ages are different.

QCDs can be used to satisfy clients’ traditional IRA RMD requirements. However, there are rules on the timing of QCDs versus other account distributions during the year.

True

Under Secure 2.0, are there rule changes that can help a surviving spouse taking RMDs from a late spouse’s accounts?

c. Yes, the new rules offer some new options that could be beneficial to a surviving spouse.

Qualified longevity annuity contracts are a way to defer savings in an IRA or employer-sponsored retirement account until later in retirement. Does this have any bearing on clients’ RMDs?

b. Yes, money diverted to a QLAC is exempt from RMDs until payments on the contract begin.

After the Secure Act, Secure 2.0 made drastic additional changes to how non-eligible beneficiaries must take distributions from inherited IRAs.

c. False, while there were some adjustments, with some still pending, the basics of the rules for inherited IRAs are the same as those that went into effect starting in 2020 for non-eligible beneficiaries.

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Quiz: Do You Know the RMD Rules for 2023?

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More on this topic

Your client turns 72 in 2023. Does she need to begin taking required minimum distributions this year?

b. No

If your client was taking RMDs before Jan. 1, 2023, is he affected by the changes contained in Secure 2.0?

b. No

Under Secure 2.0, are there no longer RMDs for Roth 401(k) and other qualified Roth accounts? Does this include Roth accounts for which participants had previously been taking RMDs?

a. Yes, but this will not be effective until 2024.

Along with the increased age for RMDs, the age to start taking qualified charitable distributions from a traditional IRA also increased to 73.

c. False, while there are overlaps between qualified charitable distributions and RMDs, the rules and starting ages are different.

QCDs can be used to satisfy clients’ traditional IRA RMD requirements. However, there are rules on the timing of QCDs versus other account distributions during the year.

True

Under Secure 2.0, are there rule changes that can help a surviving spouse taking RMDs from a late spouse’s accounts?

c. Yes, the new rules offer some new options that could be beneficial to a surviving spouse.

Qualified longevity annuity contracts are a way to defer savings in an IRA or employer-sponsored retirement account until later in retirement. Does this have any bearing on clients’ RMDs?

b. Yes, money diverted to a QLAC is exempt from RMDs until payments on the contract begin.

After the Secure Act, Secure 2.0 made drastic additional changes to how non-eligible beneficiaries must take distributions from inherited IRAs.

c. False, while there were some adjustments, with some still pending, the basics of the rules for inherited IRAs are the same as those that went into effect starting in 2020 for non-eligible beneficiaries.

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