New retirement rules

What is a Required Minimum Distribution (RMD)?
A Required Minimum Distribution (RMD) is a form of withdrawal from your account. Generally, you’re required to withdraw a minimum amount each year from your employer-sponsored retirement plan accounts, as well as IRAs, once you reach a certain age.

When do I need to start taking my RMDs?
Starting January 1, 2023, the age at which participants must start taking RMDs increased to 73 from 72 and will increase again to age 75 in 2033.

This means that:

• If you turned 72 in 2022, you met the age requirement and must continue to take your RMDs as scheduled, even though you’re age 73 now.
• If you turn age 72 in 2023, you do not need to take an RMD until 2024.

Do I need to take RMDs from my Roth 401(k) account?
Starting in 2024, RMDs will no longer be required from Roth 401(k) account balances during the lifetime of the owner. That money can remain invested in your account for your lifetime. (If you’re required to take an RMD in 2023, your Roth 401(k) balances will still be included in the calculation of your RMD from your 401(k) plan account.)

When is the deadline for taking my RMDs?
RMDs must be taken by December 31 each year. But you can delay the first RMD you’re required to take to April 1 of the following year. For example, if you turn 73 in 2024, you must take your first RMD by April 1, 2025. Even though you deferred the distribution to 2025, you’ll still need to take your 2025 RMD by December 31, 2025, resulting in two withdrawals in that year. Keep in mind that starting in 2024 you’re no longer required to take an RMD from any Roth 401(k) balance.

Do I have to take my RMDs?
Yes.  But there are two exceptions:

• You may not need to take RMDs if you’re still working at the employer that sponsors the 401(k) plan and you don’t own more than 5% of the company. Keep in mind, any prior employer’s retirement plan and IRAs will require you take RMDs.
• Starting in 2024, Roth 401(k) contributions you made and associated earnings are not subject to RMDs in your lifetime. In addition, the amount of any Roth balance in your account will not be included as part of any required minimum distribution calculation and any distribution taken from a Roth balance wil not be considered to be part of any required RMD. Pre-tax (including pre-tax catch-up), after-tax, and company contributions (unless made on a Roth basis, a provision your employer may choose to adopt if not already offered) and associated earnings will be subject to RMDs. 

How much will my RMD be?
Your RMD is calculated based on your account balance at prior year-end divided by a life-expectancy factor provided in U.S Treasury regulations. Merrill will calculate your estimated RMD amount for you. Keep in mind RMDs are generally applicable to all employer retirement plans and IRAs (excluding Roth IRAs and, starting in 2024, Roth 401(k) accounts) you may have regardless of whether you are still working (except as noted above under “Do I have to take my RMDs?”).

Will Merrill let me know when I need to take my initial RMD?
Yes. In the year you turn age 73, Merrill with notify you of your required distribution, and annually thereafter.

Will I be taxed on my RMDs?
Any tax-deferred amounts will be taxed as ordinary income when you take your distributions. Distributions from Roth 401(k) accounts are free from federal taxes if you take a “qualified distribution.”  A qualified distribution is one that is taken (1) at least five years after the first day of the year in which you make your initial contribution or Roth conversion, if earlier, and (2) you are age 59½ or older (or are disabled or in the event of your death).*

What if I have a traditional IRA or other retirement savings account?
The RMD rules apply to traditional IRAs, 401(a), 401(k), 403(b) and 457(b) accounts you may have regardless of whether you’re currently employed or not (except as noted above under “Do I have to take my RMDs?”). The exceptions are:

• If you’re the original owner of a Roth IRA you don’t have to take RMDs from that account.
• Starting in 2024, Roth 401(k) amounts are not subject to the RMD rules for the original owner.

Can I take more than my required RMD?
Yes. You can take more than the required minimum amount.

What if I fail to take my required distribution?
If you don’t take your RMD by the annual deadline, there is an additional tax of 25% of the required amount not taken (under certain circumstances the additional tax may potentially be reduced to 10%). Prior to the SECURE 2.0 Act, this additional tax was 50% of the amount not taken.

What if I have more than one 401(k) account?
The RMD rules apply to all 401(k), 403(b), 457, 401(a) and IRA accounts you may have.

Can I take my RMD and move it to another tax-deferred account?
No. RMDs cannot be moved to another tax-deferred account. 
However, beginning in 2024 RMDs are no longer required from Roth 401(k) accounts. RMDs will need to be taken only from pre-tax or traditional after-tax amounts and company contributions and all associated earnings. If your employer adopts a new provision allowing company contributions to be made on a Roth basis, distributions from Roth company contributions would not be required.

*If you take a non-qualified distribution, it is subject to regular income tax plus a 10% additional federal tax if you’re under the age of 59½, unless an exception applies. State income tax laws vary; consult a tax professional to determine how your state treats Roth 401(k) distributions.

How does the SECURE 2.0 Act affect 401(k) plan catch-up contributions?
Starting in 2025, if you turn age 60, 61, 62, or 63 in any given year, you’ll be able to make catch-up contributions of up to the greater of $10,000 or 150% of the regular catch-up contribution limit each year to your 401(k) account (this amount will be indexed for inflation, so it could be higher). Current catch-up contribution limits for those age 50 or older are available on this page.

In addition, no later than January 1, 2026, catch-up contributions for high wage earners (defined as those earning more than $145,000, indexed for inflation, in the prior year from the employer sponsoring the 401(k) plan) will be required to make catch-up contributions on a Roth 401(k) basis. See below for more information.

Am I eligible for catch-up contributions?
If your employer’s plan offers catch-up contributions, you can make these contributions starting in the year you are age 50.

Will 401(k) catch-up contributions have to be made on a Roth after-tax basis?
The SECURE 2.0 Act of 2022 included a provision requiring participants with prior year income of more than $145,000 (defined as high wage earners, see below) to make their catch-up contributions as Roth 401(k) contributions. The IRS requires the adoption of this provision by January 1, 2026. However, your plan may choose to adopt it as soon as January 1, 2024.

What is a high wage earner?
The legislation defines a high wage earner as someone who earned more than $145,000 in the prior calendar year from the employer sponsoring the 401(k) plan. This amount will be indexed each year for inflation.

What if my income is below the high wage earner amount?
If your compensation from the employer sponsoring the 401(k) plan was $145,000 or less in the prior year, you can choose to make catch-up contributions on a pre-tax or Roth 401(k) basis.

What if my income requires that I make catch-up contributions as Roth 401(k) contributions but my plan does not offer Roth? 
Plans that permit catch-up contributions but do not permit Roth 401(k) contributions will need to add the Roth feature if the employer wants to allow any participant to make catch-up contributions.

Does the SECURE 2.0 Act affect Qualified Birth or Adoption distributions?
Yes. If you want to obtain a refund of the ordinary income taxes you paid on your qualified birth or adoption distribution, you’ll generally need to do so within three years beginning on the day after the date of your distribution. However, for any qualified birth or adoption distribution you took on or prior to December 29, 2022, you must repay your distribution by December 31, 2025 to obtain a refund. Prior to the SECURE 2.0 Act, there was no time limit for repaying your distribution to obtain a tax refund.

What are some of the optional provisions employers could offer?
There are several provisions that your employer may choose to offer as they come into law and the functionality to administer the provisions becomes available. Keep in mind these are optional provisions and may or may not be available to you. Check back regularly for updates. These optional provisions include:

• Company contributions as Roth
• Matching contributions on student loan repayments
• Emergency Savings Accounts
• Emergency Savings Withdrawals
• Additional withdrawal provisions

What other changes are there with SECURE 2.0 Act?
This article provides an overview of other changes that affect retirement and 529 plans.