Currently, savers must start taking RMDs at age 72. The withdrawal amount is based on a calculation dictated by factors such as account value and longevity.

The new law raises the age at which the RMD begins in two tranches: to 73, from 2023, and to 75, from 2033.

In other words, people who turn 73 this year must receive their first Distribution no later than April 1, 2024. The distribution for subsequent years should be made no later than December 31 of this year.

Note that people who delay their first withdrawal until early 2024 should take two distributions next year – one for 2023 and one for 2024.

Delaying the RMD starting age “overwhelmingly” benefits the wealthy, said Jeffrey Levine, a St. Louis-based certified financial planner and certified public accountant. These savers are disproportionately those who can afford not to tap into their retirement accounts to fund their lifestyles.

Yet postponing the RMD age can also benefit many savers from a financial planning perspective.

For example, it can help temporarily reduce premiums for Medicare Part B and D, Levine said. Health insurance premiums are income related, and pre-tax retirement account distributions increase taxpayer income; delaying this increase in annual income can therefore keep premiums lower for longer.

From 2024, investors in employer pension plans like Roth 401(k) accounts will no longer have to take RMDs.

This change aligns Roth 401(k) with Roth IRAs, which do not require lifetime distributions.

This discrepancy was a key reason Roth 401(k) owners transferred money from their workplace retirement plan to a Roth IRA, avoiding RMDs and allowing retirement funds to continue to grow. tax free.

However, there are other considerations for keeping your money in a 401(k) or roll it. For example, investment options, fees and level of service may be better in one than the other, Levine said, depending on the quality of your workplace retirement plan.

And there could be more Roth assets in company plans in the future due to another change allowing employers to pay a matching contribution to a Roth account versus a pre-tax account.

Withdrawal rules can be complicated – and making a mistake can be expensive.

The IRS imposes a tax penalty on account holders who do not withdraw the full amount of their RMD or do not take distribution on the annual due date.

The new law reduces the tax penalty to 25% – from 50% – on the RMD amount that has not been withdrawn. If a taxpayer corrects their error in a timely manner, the penalty drops even further to 10%.

The IRS can waive penalties if savers can demonstrate that the shortfall was “due to reasonable error and reasonable steps are being taken” to remedy it, according to at the agency.

While many people miss their required withdrawals each year, this particular rule change may not have a big impact since the IRS often waives penalties in such situations, Levine said. However, it could prove particularly useful if the IRS were to crack down, he added.

To qualify for the relief, taxpayers must file Form 5329 and attach a letter of explanation.