Jacob: Well, hey there, everybody. Welcome back to Retirement Answers. My name is Jacob Duke. I'm a certified financial planner, and I help folks just like you retire on a daily basis. I appreciate you tuning in to today's show.
If you've enjoyed it so far and have had a chance to listen to a few episodes, go ahead and give me a review. That would be super helpful because that allows other people to see the show sooner and then also begin to listen because the algorithm does its thing and then it shares it with more people. So and in today's episode, we're gonna be talking about the SECURE Act two point o and some of the changes that have happened there with RMDs. We're not gonna be talking about everything that the SECURE Act two point o has changed. We're talking specifically about RMD changes.
So you're probably thinking, Jacob, thought the SECURE Act was back in 2020, and you're right. But there's another one. So we've got more changes coming. Before we get to the changes on the new SECURE Act, let's go back to 2020 with the original SECURE Act and talk about some of the changes that happened there, and they mostly affected retirees. I won't go back and recap all of those different changes that the SECURE Act made, but one of the biggest changes was that RMDs were pushed back from '70 and a half to '72.
Well, they changed RMDs on us again. In a typical fashion, they didn't make it easier to understand. So I'm just gonna go ahead and jump straight in, and we're gonna break this down. If you turned 72 in 2022 or before, you are already taking your RMDs. So nothing is gonna change for you.
So here's how the new RMD rules work, and I'll read this directly from the bill. And it says, in the case of an individual who attains age 72 after 12/31/2022 and age 73 before 01/01/2033, the applicable age for RMDs is 73. So if you turn 72 between years 2023, which we're in right now, and then 2032, your RMD age is gonna be 70 And then it goes on to say, in the case of an individual who attains age 74 after 12/31/2032, the applicable age for RMDs is 75. So if you turn 74 in 2033, or later, your RMD age is gonna be 75. So is that clear as mud?
Well, what's interesting about this is that there are two actually gap years throughout this period where no one will actually begin taking new RMDs. So if you're already taking your RMDs, everything remains the same. You're you're on your, schedule. Everything is the same for you. The first year that no one new is gonna begin taking RMDs is actually this year in 2023.
If you turn 72 in 2022, well, your RMDs will begin in 2022, so you have until April of this year twenty twenty three to make your first RMD. Because turning age 72 for you was actually under the old rules. And then if you turn 72 this year in 2023, then you were actually 71 in 2022, so you didn't start RMDs last year. And then now under the new RMD rules, your RMD age is 73. But remember, you're only turning 72 this year.
So there's a gap there. Nobody is going to begin taking RMDs this year in 2023. The second gap year, because the same thing happens, later on, ten years down the road is gonna be 2033 where the RMD age changes from 73 to 75. So no one new will begin taking RMDs in 2023. Okay.
So this is pretty confusing. I've created kind of a easier way to understand this, and it's based on your year of birth rather than knowing when you're gonna turn a certain age in the whole thing. So it's just as simple as this. If you were born in 1950 or earlier, you are already receiving your RMDs, so nothing is gonna change for you. If you were born in 1951 to 1959, your RMD age is gonna be 73.
If you were born in 1960 or later, your RMD age is gonna be 75. So that's kinda the update on RMD changes. We're we've jumped basically over the last three years from 70.5 all the way up to potentially 75. So not everyone is is on the same RMD starting age. It's now based on how old you are at a certain time, which is another way of saying depending on what your birth year is.
So with that being said, they've kind of been pushed back at a minimum from 70.5 to 73, potentially to 75 depending on when you were born. So at first glance, this kinda looks like, you know, Jacob, this is good. Right? We have more time to delay our forced IRA distributions. And on the surface, this is a good thing because you have an extra year or two, before you have to begin taking RMDs.
But there is a hidden negative effect of this that could come back to bite you if you don't plan accordingly. Your RMDs are still going to be based on the life expectancy tables like they are now. So effectively, what is gonna happen is your RMDs are gonna be compressed down into a fewer number of years. So now you're gonna actually have to take larger RMDs once they do begin that could push you into higher tax brackets. Right?
It could increase how much your of your Social Security is actually taxable. It could push you over the Irma cliff, making you have higher Medicare premiums. And so, combine this tax issue of, you know, what we call perhaps maybe bunching where it's kind of compressing all of your RMDs into a smaller number of years, you're gonna have higher distributions. Therefore, your tax rates will likely increase because it could push you into different income brackets. And so combine this with the fact that all non spouse beneficiaries now have to take RMDs over that ten year period.
Remember back to the original SECURE Act in 2020, that rule had changed. Now you have major tax issues looming in the future if you don't plan for these kind of condensed number of years that you might have to take RMDs. So all that to say, you know, I think tax planning perhaps even becomes more important as we begin to look forward because if we don't do anything about your future RMDs one day, you're gonna actually have larger RMDs, which is gonna be a bigger tax issue. So kinda doing some tax planning and developing a plan for those taxes in the future during your gap years becomes that much more important. And what do I mean by gap years?
Well, think of your gap years as the years between when you retire and when your RMDs start. Or even better or just to be more precise, think of it as the years between when you retire and then when you begin receiving your Social Security income. These gap years are your prime opportunity to implement tax reduction strategies because your income is gonna be the lowest it will be for the rest of your life. This is a great time to do Roth conversions if that's something that will be helpful for you, and then get as much as you can from tax deferred to tax free. So while you will have more flexibility by having your RMDs delayed a little bit longer, if you don't take advantage of that flexibility with thoughtful tax reduction strategies, you could be paying more in taxes later on in your life than you otherwise expected to.
So just something to think of as you continue to navigate your retirement plan if whether you're in retirement or, thinking about it over the next few years, continue to think about these RMDs and how they might have changed for you. And then also the fact that just because they have been pushed back a little bit does not mean that we can't continue planning and developing a strategy for those taxes in the future. So I appreciate you tuning in to this episode of Retirement Answers. Hopefully, you learned something in regards to your RMD age and perhaps how it may have changed. And then just a a good reminder around, hey.
We need to plan for taxes because it could be a huge issue in the future. So thanks so much. My name is Jacob Duke, and I appreciate you tuning into this episode of the Retirement Answers Show. We will see you next week.