Updated March 2, 2023 to reflect the updated California tax deadline.
NEW BEGINNING AGES FOR RMDS
The SECURE Act that was signed into law at the end of 2019 changed key rules around Individual Retirement Accounts (IRAs). Notably, the age to begin taking required minimum distributions increased from 70.5 to 72. The Act also eliminated the stretch IRA for inherited IRAs and introduced the 10-year withdrawal rule for those accounts.
Enacted at the end of 2022, the SECURE 2.0 Act further increased the initial age for taking a first RMD from an Individual Retirement Account (IRA) from age 72 to:
- Age 73 if you were born between 1951 and 1959
- Age 75 if you were born in 1960 or after
This is significant because the longer a retiree can wait to start taking withdrawals from a retirement account, the longer the tax-deferred assets have an opportunity to grow — which is generally a good thing for retirees.
WITHDRAWAL RULES FOR INHERITED IRAS
While the original SECURE Act introduced the 10-year withdrawal rule for inherited IRAs, it did not provide clear guidance on when and how distributions need to be taken. Given the uncertainty around the rule, the IRS issued a notice in October effectively waiving RMDs for inherited IRAs in 2021 and 2022 and outlining regulations for RMDs starting in 2023. The current draft regulations for inherited IRA beneficiaries subject to the 10-year rule are:
- If the original IRA owner started taking distributions before death, RMDs are required in years one through nine and the final distribution must be made by year 10.
- If the original IRA owner had not started taking distributions before death, then RMDs are not required in years one through nine, but complete distribution must still be made within 10 years.
CALIFORNIA TAX DEADLINE EXTENSION
The IRS and California Franchise Tax Board offered some relief to California taxpayers affected by the 2022-23 winter storms. For individual and business taxpayers in impacted counties (identified by the Federal Emergency Management Agency), the 2023 deadline to file state and federal tax returns, and make certain payments, has been extended from April 18 to October 16. The tax filing and payment deadline was previously extended to May 15 for those impacted by the winter storms.
BOOST IN SOCIAL SECURITY BENEFITS
The largest cost-of-living adjustment in more than 40 years resulted in Social Security benefits increasing by 8.7% in January.
LOWER MEDICARE PREMIUMS
Medicare Part B (medical insurance) premiums declined slightly for most retirees at the start of the year, the first decrease in over a decade. Because these premiums are typically deducted directly from Social Security payments, this will result in a larger net Social Security benefit for most retirees.
Download Article: Tax and Retirement Updates
The above information is for educational purposes and should not be considered a recommendation or investment advice. Investing in securities can result in loss of capital. Past performance is no guarantee of future performance.