New Retirement Account Rules: What You Need to Know

As we near the end of 2023, it is important to remember the changes to deadlines and penalties related to Required Minimum Distributions (RMDs), as well as other new retirement account rules that may apply to you either now or in the future.

• The age for beginning minimum distributions from your retirement account has increased to 73 for 2023, and will be increased to 75 in 2033.
• Those born in or before 1950: unaffected by change and must take RMDs due for 2022 and later years.
• Penalty decrease for failed RMD: The IRS penalty has been reduced from 50% to 25%. If you correct the failed RMD by filing a correct tax return within 2 years of the year-end for the failed RMD, the penalty will be reduced to 10%.

• IRA owners at least age 70 ½ are eligible for a Qualified Charitable Distribution (QCD) of up to $100,000 per individual per year, tax-free. A new IRA QCD provision allows an additional one-time $50,000 distribution to charities through charitable gift annuities, remainder unitrusts, and remainder annuity trusts.

For early distributions (pre-59 ½ years of age) an additional 10% tax generally applies unless you qualify for an exception. New exceptions include:

• Distributions to terminally ill individuals: exempted if a physician certifies the illness is likely to result in death within 84 months.
• Public and private sector firefighters: may take penalty-free premature distributions beginning at age 50.
• Penalty free distribution: for up to $22,000 in the case of a federally declared disaster. Distributions may be accounted as gross income for over 3 years and may also be repaid to a tax preferred retirement account.

• For small employer retirement plan startup costs, a credit may offset startup administration costs for the first 3 years of a new plan’s establishment. The credit is increased from 50% to 100% for employers with up to 50 employees, and dollar limitations apply with no more than $5,000 may be credited annually.
• Employers with 51-100 employees still receive 50% credit.

• This credit is a percentage of employer contributions on behalf of employees with a per-employee cap of $1,000. It is limited to employers with 100 or less employees with an applicable percentage of 100% the first 2 years, 75% the third year, 50% the third year and 25% the fifth year. Additional reductions apply for employers with 51-100 plan eligible employees. No credit is available after these 5 years.

• The 25% cap that limited how much retirement savings could be allocated to QLAC purchase is eliminated. The maximum aggregate limit on QLAC purchases has increased from $125,000 to $200,000.
• QLAC payments usually begin toward the end-of-life expectancy and do not have typical RMD requirements.

• Employers may establish new 401(k) plan after end of taxable year, before employer’s tax filing date.
• Employer contributions may be made up until tax filing date.
• Sponsored by individual who is a sole proprietor or taxed as self-employed may have salary deferral made up until tax filing date.

• May now accept Roth contributions as Roth in whole or part. Updates to plan documents, regulations and guidance for administration are necessary before Roth contributions can be made.

• Employers with defined contribution plans may allow participants to receive matching and profit sharing contributions on a Roth basis.  Forthcoming IRS guidance will be necessary before these options may be employed.

Have more questions? We are here to help. Reach out to your Oppenheimer Financial Professional if you have any further questions or concerns about the new RMD requirements and guidelines.