Retirement plans are complicated: SECURE and SECURE 2.0 did not help

We spend all of our working years scrimping and saving so when that magic day comes, we can start spending on our retirement. Your friendly federal government encourages this by deferring taxes on our saved money, as long as we follow the rules and have it in a recognized retirement account.
But your government has only so much patience. Part of the deal is that it will force you to eventually start withdrawing your retirement funds and paying the associated taxes. The amount that you must withdraw is called your required minimum distribution, or RMD. Originally, you had to start withdrawing money when you reached age 71½. When you died, then your beneficiaries also got favorable treatment by stretching out their forced withdrawals on their inherited account.
Then the government started tinkering. It passed the SECURE Act in 2019, followed by the SECURE Act 2.0 in 2022. The IRS chimed in with clarifying regulations, most recently on July 18, 2024. More regulations have been proposed.
After all the changes, the mandatory age for starting withdrawals is age 73. However, this differs depending upon the type of retirement account.
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The magic age for withdrawals from your traditional IRA, SIMPLE IRA, SEP IRA or retirement plan accounts is 73 (if you reached age 72 before Dec. 31, 2022, then the cutoff was age 72).
The magic age for withdrawals from your 401(k), profit-sharing, 403(b) or other defined contribution plan is 73, with one big caveat: If the retirement plan allows it, then you can delay withdrawals until you retire, provided you do not own 5% or more of the business.
The best of all worlds is your Roth IRA. You are not required to withdraw money from your Roth IRA during your lifetime.
For RMDs, timing is everything. Generally, your first RMD is due on April 1 of the year after you hit the target age. Your second RMD is due on Dec. 31 of the same year.
For those straddling the required distribution age change from 72 to 73 (brought about by changes found in the SECURE 2.0 Act), there is a grace period. If you reached age 72 in 2023, you must take your first RMD by April 1, 2025. This first distribution covers your required 2024 distribution. There is no RMD for 2023.
We all know that a retirement plan has two parts: your life and after your death. The first part – during your lifetime – covers when you have to take RMDs. The second part is when your beneficiaries have to take RMDs after you die.
If your beneficiary is your spouse, then your spouse can elect to take a spousal rollover of your account. The time for taking withdrawals is stretched out.
For most other individual beneficiaries, SECURE Act and SECURE 2.0 Act wrought woeful changes. If you were in an RMD status when you died, then your beneficiaries must withdraw the entire account within a 10-year period. The final rules apply for distribution calendar years beginning on or after Jan. 1, 2025. In recognition of the uncertainty surrounding withdrawals before final rules were issued, there is no penalty and no requirement to make up for missed RMDs for the years 2021-2024.
The law in this area is complex, and the penalties are onerous. Rely on the experts to figure this out for you.
Attorney Virginia Hammerle will present legal information about the power of attorney from 11 a.m. to 12:30 p.m. on Oct. 8 (Tu) at the Park Forest Branch Library auditorium, 3421 Forest Lane, Dallas. Registration is required. To register, visit dallaslibrary2.org, click on Events, choose Park Forest Branch and click on “Power of Attorney with Virginia Hammerle.”
Attorney Virginia Hammerle is board certified in civil trial law by the Texas Board of Legal Specialization and an accredited estate planner. To receive her monthly newsletter, contact her at [email protected] or visit hammerle.com. This column does not constitute legal advice.