After a brief hiatus in 2020 thanks to the CARES Act (which waived required minimum distributions or RMDs for that year), RMDs are once again required, but the landscape has changed. The SECURE Act and its successor, SECURE 2.0, introduced important rule changes around when you must begin RMDs, penalties for missing them, and other strategic options.
Before you decide what to do with your RMD this year, check the rules that apply to you, then consider how you might put the distribution to work:
Key Rule Changes to Know
- The age at which you must begin taking RMDs has increased: under SECURE 2.0, if you turn 72 after December 31, 2022, your RMD age is 73, and for those turning 74 after December 31, 2032, the age will be 75.
- The penalty for failing to take the full RMD amount by its due date has been reduced: starting in 2023 the excise tax rate is 25% of the short-fall, down from 50%; and if the error is corrected in the designated correction window (often within two years) the rate may fall to 10%.
- For those in employer retirement plans, designated Roth accounts (such as Roth 401(k)/403(b)) are exempt from RMDs starting back in 2024.
Now, What to Do With Your RMD
Once you’ve confirmed you’re required to take a distribution (and have met your deadline), here are some ideas for putting the funds to work:
1. Give the Gift of a Lifetime – Whole Life Insurance
You could use your RMD to purchase a whole life insurance policy for a child or grandchild, creating a “living legacy.” Because children generally qualify for lower premiums, this can lock in guaranteed protection for life and build cash value that can be borrowed for college, a down payment, a startup, or other legacy uses.
2. Give the Gift of Education – 529 Plan Option
Another alternative is to contribute your RMD to a 529 Education Savings Plan in the name of a grandchild (or adult child returning to school). The funds grow tax-deferred and withdrawals for qualified education expenses are tax-free. Each state has its own contribution limits, so you’ll want a plan with a knowledgeable advisor on your side.
Note: Under SECURE 2.0 there is also a limited 529-to-Roth IRA rollover option (subject to rules and lifetime caps), which adds a planning wrinkle.
3. Support a Cause – Qualified Charitable Distributions (QCDs)
If you are age 70½ or older, you may direct your RMD (up to the annual limit) to qualify as a QCD, meaning the amount goes to charity and is excluded from your taxable income. While the annual limit has historically been $100,000, this amount is now indexed for inflation and may differ for the current tax year. Under current law this remains a strong option for those already giving charitably.
4. Reinvest or Spend
Of course, you can always reinvest your RMD in a taxable account or use it for personal spending. If you do so, remember that the amount counts as taxable income (unless it qualified as a QCD) and may push you into a higher tax bracket or impact Medicare premiums or Social Security taxation. Good planning suggests you treat the distribution purposefully.
Important Deadlines & Considerations
- The first RMD after your required beginning date is due by April 1 of the year following the year you turn the RMD-age. Subsequent distributions must generally be taken by December 31 each year.
- If you miss taking the RMD (or take too little), you’re subject to the excise tax described above (25% or possibly 10% if corrected).
- Because the starting age has changed, it’s essential to confirm which rule set applies to your birth year, the transition from 72 → 73 → 75 can be confusing depending on your date of birth.
Final Thoughts
The “RMD” world has shifted. While many of the older strategies still apply (gift a policy, fund 529s, support charity, reinvest), the dates, deadlines, and penalties have evolved and your planning should reflect that. If you’ve determined you must take your RMD this year, act early, work with your advisor, and treat the distribution as a strategic move, not just a tax-drag.
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