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Why Lower RMD Penalties Could be Bad News

Why Lower RMD Penalties Could be Bad News

February 15, 2023

Required minimum distributions (RMDs) have been in the financial/investing news a lot over the last several years.  RMDs came into being when Individual Retirement Arrangements (IRAs) were introduced back in 1974.  Their purpose was to make IRA owners withdraw from their accounts so that the Treasury could collect taxes on all the tax deferred money that had accumulated over time in IRAs.  The age set for RMDs at that time was 70 ½.

To ensure that those over 70 ½ wouldn’t forget to take their required distributions, a 50% penalty was assessed on missed RMDs.  This confiscatory penalty was enough to get the attention of IRA owners, and very few forgot to take out the required amount each year.

Since 2020 there have been a lot of changes surrounding RMDs.  In 2020, the age when required distributions had to begin was raised to 72, and this year, it was raised to 73.  In fact, SECURE 2.0 provides that in 2033 the age will increase again, this time to 75.  Click HERE to read more.