Now, however, such individuals no longer have to take those same distributions from their IRAs and other retirement accounts, as they will be permitted to delay these distributions with a new RMD age of 72 (delaying their first required distributions under 2021 or 2022 depending on when their birthday falls). Allows long-term, part-time workers to participate in 401(k) plans. Table showing sequence of RMDs for those born between July 1, 1948 - June 30, 1949. The two benefits are: To maintain consistency with the direct change to the age at which RMDs begin, the SECURE Act includes language that applies the age change to these important spousal beneficiary benefits. As a result of the SECURE Act’s changes, though, Randall will not have to … The first three columns are descriptive (Birth Month, Birth Year, and “Age 72 in”). Rather, the current life expectancy factors that apply for various ages will continue to apply when retirement account owners reach those ages. The new rules must be understood by those whose provide advice regarding RMDs – including post-mortem RMDs. Many advisors use various kinds of technology to help them plan for and communicate with clients. It’s likely that many of these systems have some sort of logic built around RMDs beginning at age 70 ½, such as: Advisors should carefully review systems and processes to see what items may need to be updated in order to keep them in compliance with the SECURE Act’s changes. For those who could afford to delay IRAs and Social Security until required to do so (or in the case of Social Security benefits, until there was no longer good reason to delay benefits), Gap Years would end when income from both Social Security and RMDs began to flow in – often at around the same time, as Social Security would begin at age 70, and RMDs in the year an individual reached 70 ½. Traditionally, so-called “Gap Years” have been generally understood to represent the years between when an individual retired and when they began receiving Social Security benefits and taking RMDs. If you are taking both your 2019 and 2020 RMDs in 2020, you’ll report both RMDs as income on your 2020 tax return. Therefore, prior to the changes made by the SECURE Act, Mike would have needed to begin taking RMDs in 2021 (or as late as April 1st of 2022). If you were born anytime in 1953, you would turn 72 in 2025, which would be the first year that you would be subject to your RMD. For such individuals, pushing back the RMD starting age “from 70 ½, all the way to 72” (note dripping sarcasm) may seem like only a minor change, but whenever Congress cracks open a planning window, it’s best to make the most of it, no matter how small that crack may be. Couple wonders if they need to take RMDs. Instead of having the required beginning age for RMDs set at 70.5 (or when retired, if later) it has been pushed to age 72. Want to know how to explain what your advice is worth? A good starting point would be to segment clients based on their birthday – where those born prior to July 1st of 1949 are subject to the ‘current’/old rules (where RMDs begin or already began by age 70 ½), while those born after June 30th of 1949 wouldn’t have been turning age 70 ½ until 2020 or later and consequently will all be eligible for the new age-72 RMD rules. If you turned 70 ½ in 2019, your 2019 RMD is calculated based on your Dec. 31, 2018 IRA or employer plan balance, as shown in Table 4, below. As shown in Table 3, below, you reached the age of 70 ½ in 2019, before the effective date of the age 72 provision of the SECURE Act. 590-B). Example #1: Sulley is a Traditional IRA owner who was born on June 3, 1950. So for an individual who attains age 70-1/2 during 2020, the new tables would not apply to the 2020 RMD due April 1, 2021, but would apply to the 2021 RMD due Dec. 31, 2021. Although the SECURE Act changes the age at which RMDs must begin (for those turning 70 ½ after 2019), the law made no change to the age at which Qualified Charitable Distributions (QCDs) may begin (which is also age 70 ½). Jeffrey continues to be an active speaker, traveling the country each year to educate thousands of Financial Advisors, CPAs, Attorneys, and consumers on retirement, tax, and estate planning strategies. Your email address will be used solely for updates and NEVER sold or shared with anyone! Questions are arising about how the SECURE Act’s new age 72 RMD (required minimum distribution) works, especially for those who are age 70 1/2 now. The first that we’ll tackle are the SECURE Act RMD rules (Required Minimum Distribution) for original owners of IRAs. If Clarice were to take only the RMD amount from her account each year, she would have roughly $821,000 (after factoring in her 6% annual return rate) in her IRA by age 95. Input invited on periodic updates. Sorry, your blog cannot share posts by email. An initial RMD is generally due by the April 1 after an individual reaches age 70-1/2, but subsequent RMDs are due by each Dec. 31. So, even though IRA owners (QCDs can only be made from IRAs) will not have to start taking RMDs from their IRAs until they reach age 72, they will still be able to make QCDs from those accounts once they reach the actual age of 70 ½ (notably, not just the year in which they reach age 70 ½ like RMDs; for QCDs, the individual must actually reach age 70 ½). Notably, the change impacts Non-Designated Beneficiaries after the death of the retirement account owner, as well as spousal beneficiaries who choose to remain beneficiaries of an inherited retirement account. Which, admittedly, may disproportionately be the clients that financial advisors tend to work with! [Emphasis added]. Register now to join us LIVE on Tuesday, December 1, at 3:00 pm EST for our CE-eligible webinar, End-Of-Year And 2021 Tax Planning For A Biden Administration. Let’s take an example. Last month, the Setting Every Community Up For Retirement Enhancement (SECURE) Act was passed into law, creating the most substantial updates to the laws governing retirement accounts since the Pension Protection Act in 2006. January 8, 2020 07:04 am 17 Comments CATEGORY: Retirement Planning. can really benefit from this change. Who Does the New Age 72 RMD Rule Apply To? Fourth, official IRS resources that are available online have not been updated yet. To that end, earlier this year, as part of Proposed Regulations to update the Life Expectancy Tables that individuals use to calculate RMDs, the IRS indicated that according to its own numbers, only about 20% of people take just the required minimum amount. My firm, Jackson, Grant Investment Advisers, Inc.


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