What you need to know about SECURE ACT 2.0 RMDs: Rising age limits, surviving spouse changes

By Kimbarley A. Williams and Emily Roman

The SECURE Act of 2019 delayed the age when Americans must take required minimum distributions from certain retirement plans. Now, when employers have adjusted to comply, along comes SECURE ACT 2.0 of 2022.

It’s time to update systems for SECURE Act 2.0’s Required Minimum Distribution (RMD) provisions that take effect for the 2024 plan year. Get your ducks in a row, and you’ll paddle more easily through another delay in the age for taking RMDs, plus the new options for surviving spouses of deceased plan participants.

What are RMDs?

The original Setting Every Community Up for Retirement Act aimed to encourage Americans to save more and prevent them from outliving their assets in retirement. SECURE Act 2.0 stays on that path but with changes to the rules.

Even before the first SECURE Act, retirement plan participants, who were over the age of 70.5, were subject to yearly minimum withdrawals. These RMD rules apply to employer-sponsored retirement plans, including profit-sharing plans, 401(k)s, 403(b)s, 457(b)s, and IRAs and IRA-based plans.

The account holder’s birth date determines when withdrawals start. Under the Required Beginning Date (RBD), the plan must either distribute 100 percent of the participant’s vested account or begin distributing portions according to IRS calculations.

To determine distribution amounts, calculate the account’s prior year-end fair market value by a life expectancy factor, which is a number found in the Uniform Life Table (ULT).

Changes: SECURE Act and SECURE Act 2.0

In 2019, the first SECURE Act delayed the age at which plan holders must take their RMDs, known as the Required Beginning Date (RBD), from 70.5 to 72.

SECURE Act 2.0 further delayed the RBD. Now, it’s age 73 for participants born from Jan. 1, 1951, to Dec. 31, 1959, or 75, for those born after Dec. 31, 1959.

SECURE Act 2.0 also lifted RMD requirements for Roth plans while participants are alive, allowed spouses to use the Uniform Lifetime Table, and reduced the penalty for failure to distribute an RMD. It also added a 10-year cutoff after the account holder’s death, eliminating the past practice of heirs deferring their payments.

Other RBD rules to keep in mind include:

• Account holders who own 5 percent or more of the business sponsoring the plan cannot delay RMDs until retirement. Owners of less than 5 percent of a company and employees can delay the RBD until retirement. In the case of a plan sponsored by multiple employers, participants who own 5 percent or more of any of those employers are subject to the same limitation.
• Plans may elect to use a uniform RBD rather than the tiered system ranging from 70.5 to 75 to simplify implementation.
• The effective date of implementation was delayed until Jan. 1, 2025, and most plans don’t require amendments until Dec. 31, 2026. With implementation looming, it's important to ensure the data you're submitting to your third-party administrator is accurate.

Surviving spouse distributions

Of course, retirement account holders can die, leaving spouses who inherit their accounts behind. In a change made by SECURE Act 2.0, which took effect on Jan. 2, 2024, surviving spouses can roll over their spouses’ 401(k) accounts into their own, or they can formally elect to treat the account as their own without rolling over.

Considerations include:

• If the surviving spouse assumes the account as their own, it goes in their name at the beginning of the year in which the election is made.
• If the deceased spouse reached RBD age, the RMD must still be taken, even if the deceased hadn’t taken it before death.
• RMDs that have started must continue to be taken.

Calculating the RMD remains a simple matter of treating the surviving spouse as an employee. Under this rule, the surviving spouse can use the Uniform Lifetime Table (ULT) to determine the life expectancy factor. You can calculate the amount by taking the account balance as of Dec. 31 of last year divided by the life expectancy factor.

Example: 75-year-old Sam is a surviving spouse who inherited a $100,000 401(k), and his life expectancy factor is 24.6. Divide $100,000 by 24.6, for an RMD of at least $4,065. Remember that you’re using his RBD for the calculation, not the deceased’s.

What if a plan participant dies before reaching RMD age? In those cases, the surviving spouse can delay RMDs until the deceased spouse’s RMD age. Once again, you can calculate RMDs using the surviving spouse’s age and the ULT. Until now, the ULT could be used to calculate RMDs during the participant’s lifetime, not a beneficiary’s.

Example: 61-year-old Robert died in April 2024. His 55-year-old wife and beneficiary, Monica, can delay RMDs for 14 years, until the day her husband would have been required to start – in his case, at age 75, because he was born after 1959.

Bottom line

As always with IRS rules, the devil is in the details. Contact the Employee Benefit Plan Services team at Boyer & Ritter for knowledgeable, up-to-date guidance.

Kimbarley A. Williams, CPA, is a principal at Boyer & Ritter LLC and is chair of the firm’s Employee Benefit Plan Services Group. Kim has over 20 years of experience providing audit, accounting and tax services to employee benefit plans, business trade associations, charitable organizations, community foundations, and closely held businesses. Contact Kimbarley at 717-761-7210 or kwilliams@cpabr.com.

Emily Roman, CPA, joined Boyer & Ritter in 2016 and brings extensive experience in performing and managing audits. As a generalist in reviews and audits, she works with a wide range of industries, including leasing and transportation. However, her primary expertise lies in construction and employee benefit plans. Contact Emily at 717-761-7210 or eroman@cpabr.com.