As we approach tax season, one of the most frequently asked questions is this: How much should I put into my individual retirement account (IRA)? The next question is: Should the contribution be Roth or traditional? A lot of factors go into deciding which IRA is right for you. With the passing of the SECURE 2.0 Act, the decision got a little more difficult.

Let's start with the basics. After you reach a certain age, you will be required to start taking required minimum distributions (RMDs). RMD is the minimum amount that must be withdrawn annually from retirement accounts such as IRAs, 401(k)s and other similar retirement plans once you reach a certain age mandated by the IRS. The age at which RMDs must begin has been adjusted to 72, following the SECURE Act of 2019. This was changed again once SECURE 2.0 was passed in 2022.

The SECURE 2.0 Act introduced several significant changes to RMD rules.

-- Increased RMD Age: The age you are required to take RMDs moved from 72 to 73 as of 2023 (for those born after Dec. 31, 1950, and before Jan. 1, 1959). Beginning in 2033, the age for starting RMDs has been further increased to 75 (for those born on or after Jan. 1, 1960). This change allows farmers more time to grow their retirement savings before mandatory withdrawals begin.

-- RMD rules now no longer apply to Roth IRA, Roth 401(k) and Roth 403(b) during the life of the participant.

-- Reduced Penalties: The penalty for failing to take an RMD has been reduced from 50 to 25% of the amount not withdrawn. If the mistake is corrected promptly, the penalty can be further reduced to 10%.

-- Qualified Charitable Distributions (QCDs): Farmers can continue to use QCDs to satisfy their RMD requirements. By donating directly from their IRA to a qualified charity, they can reduce their taxable income while supporting causes they care about.

Additionally, the SECURE 2.0 Act issued new changes for spouses and nonspouse beneficiaries regarding RMDs. Under the new rules, beneficiaries must generally follow a 10-year standard for withdrawing plan assets. However, there are some exceptions for spouses, disabled or chronically ill individuals, or beneficiaries who are not more than 10 years younger than the participant.

For spouses, if they inherit a retirement account, they have several options:

1. They can treat the account as their own, which means they can delay RMDs until they reach the required age.

2. They can roll over the account into their own IRA, allowing them to delay RMDs.

3. They can take distributions based on their own life expectancy, which can spread out the tax impact over a longer period.

For kids and other nonspouse beneficiaries, the SECURE Act introduced the 10-year rule, which requires them to withdraw all assets from the inherited retirement account within 10 years of the account owner's death. This rule applies to most beneficiaries, but there are exceptions for disabled or chronically ill individuals, minor children of the account owner (until they reach the age of maturity) and beneficiaries who are not more than 10 years younger than the account owner.

Understanding the new RMD rules and the pros and cons of traditional and Roth IRAs is essential for farmers to ensure a smooth transition into retirement. By taking proactive steps and leveraging available strategies, farmers can manage their retirement distributions effectively, minimize tax liabilities and secure their financial future.

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DTN Tax Columnist Rod Mauszycki, J.D., MBT, is a tax principal with CLA (CliftonLarsonAllen) in Minneapolis, Minnesota. Read Rod's "Ask the Taxman" column at https://www.dtnpf.com/…. You may email Rod at taxman@dtn.com.

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