The SECURE ACT (The Act) legislation — which stands for “Setting Every Community Up for Retirement Enhancement” was signed into law by President Trump earlier this month as part of the government’s spending bill. Over the next three weeks, we will talk about three key changes that may impact you and your retirement planning.
In this article, we want to talk about the new required minimum distribution (RMD) rules.
Before the SECURE ACT, required minimum distributions for company retirement plans and IRAs started at the owner’s age of 70 1/2. The Act moved the start of RMD’s to the owners age of 72.This means that if you turn age 72 before the end of the year, you must begin taking RMD’s. Here are a few important notes:
There is still an exception for first year RMD’s which allows the delay until April 1 of the following year. If the first year RMD is delayed, two RMD’s must be taken in that year (the delay year and the current year).
Those who turned 70 1/2 during the year 2019 are still under the old rules and need to continue to take RMD’s each year.
Qualified Charitable Distributions are unaffected. This means that an individual who turns 70 1/2 can begin making direct charitable distributions even though they are not subject to required minimum distributions from their accounts until the age of 72.
In a future week we will discuss new rules related to Stretch IRAs. The new Act requires that non-spouse beneficiaries of IRA accounts distribute proceeds within a 10 year time horizon. The rules related to Stretch IRAs and the rules related to the delay of RMD’s to age 72, in effect, compress the time required to distribute money out of IRA accounts and increase the amount that needs to be taken each year, potentially putting owners and beneficiaries in much higher brackets due to these distributions.
What all this means is that taking advantage of IRA distributions and Roth conversions in the years leading up to age 72 is more important than ever. With current tax law sun setting at the end of the year 2026 and potentially higher tax brackets on the horizon, there is no more critical time than now to plan distributions out of IRA accounts to pay income taxes at lower rates and save future beneficiaries from tax heartburn.
If you have any questions please feel free to contact me.