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SECURE Act Changes Rules for RMDs

January 21, 2020

New rules for required minimum distributions (RMDs) apply to all those who did not reach age 70 ½ by the end of 2019. Learn more about what’s changed.

The recently signed Setting Every Community Up for Retirement Enhancement (“SECURE”) Act , effective January 1, 2020, changes the so-called Required Minimum Distribution (RMD) age to 72 for everyone born on July 1, 1949 or later. If you turned 70 ½ in 2019, you must take your RMD by April 1, 2020. The former rules still apply to you.

Do RMDs come from traditional or Roth IRAs?

You must take RMDs from your traditional IRAs (but not your Roth IRAs.) Why? Paternalistically, the tax rules require minimum annual distributions be made to help assure that IRAs are used primarily to provide for retirement, rather than as a family tax shelter for future generations. Realistically, the government needs the tax revenue.

Attention those born on July 1, 1949 or later…

If you did not reach age 70 ½ in 2019, you are required to take your first RMD once you turn 72 under the new rules (specifically April 1st of the year after you turn 72). So those turning 72 in 2021 must take their first RMD by April 1, 2022. For each year thereafter, the required minimum distribution must be made annually by December 31st.

Why the change?

Congress decided to push out when RMDs should begin because people have generally been working longer and delaying retirement in recent years.

Calculate your RMD

Annually the required minimum distribution is calculated by dividing the IRA balance as of December 31st of the preceding calendar year by the applicable life expectancy factor. Complications in the computation may arise if you have more than one IRA account. The RMD is based on the total of all the accounts, but you can take the funds from any account, or a combination of the accounts.

How do I report this?

IRA trustees are required to report the required distribution amount to IRA owners, or to calculate it for the owners on request, by January 31st of the year the distribution is required. However, as the required minimum distribution can be withdrawn from whichever IRA you chose, you are responsible for ensuring the proper amount is timely received. You could be hit with a 50% penalty tax if you don't withdraw the required minimum amounts each year. It is your responsibility to take the RMD, not the Trustees’.

Any other requirements?

Annual distributions are also required to be made from your employer's qualified plan. Generally, the plan administrator is responsible for calculating and timely paying the RMD amount from qualified retirement plans.

Are there any exceptions?

Yes, if you’re still employed by the company that sponsors your retirement plan and you don’t own 5% or more of the company, you can push out your RMDs until the year after you retire.

If you’re turning 70 ½ in 2020, you now have more time to comply but it’s important that you don’t forget to take your RMDs as you’ll face penalties for noncompliance. We’ll keep you updated on important deadlines!

Questions? Don’t hesitate to call us.

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