July 30, 2020 Recent RMD Updates and Changes

July 30, 2020 Recent RMD Updates and Changes

July 30, 2020

There have been a number of changes related to required minimum distributions (RMD’s) over the past several months. With the passage of the SECURE act in late 2019, and the passage of the CARES act in response to the COVID pandemic, you want to be sure to have all the latest information.

In the past, the magic age to start the process of RMD’s was 70.5. The SECURE act changed that age to 72, thus delaying when people must start pulling money from their retirement accounts. One must begin taking their RMD’s in the year in which they turn the applicable age. There is the ability to defer one’s first year payment until April 1 of the following year, however keep in mind this would require 2 payments that following year. The first by April 1st, and the second by December 31st.

Additional changes from the SECURE act affect the way some beneficiaries of retirement accounts have to distribute the money. Whoever inherited a retirement account used to be able to spread the RMD’s over their life expectancy. Now, many beneficiaries will be required to deplete the entire account over a ten year period.  It’s important to note that a spouse who inherits a retirement account is not subject to these new changes.

The CARES act brought some temporary adjustments as it pertains to RMD’s. Because of the turmoil in the stock market, RMD’s for 2020 were/are not required. The intent was to provide relief to people having to draw funds that had significantly declined in value, and not create additional tax liability. Of course if someone needs money from their retirement accounts to supplement their income, they are certainly able to take the RMD as they normally would. This applies to IRA’s, inherited IRA’s, 401K’s and inherited 401K’s. It does not apply to defined benefit retirement plans.

So what happens if someone has already taken their RMD for 2020? The IRS recently announced that anyone who has already taken their RMD may pay it back into their retirement account. This applies to anyone who has taken their RMD between 1/1/2020 and 6/30/2020. The funds can be returned via a rollover transaction. Normally the IRS would limit this to once every 12 months, and completed within 60 days of the distribution. However, neither of those stipulations apply to this one time measure.

If you have not yet taken your RMD for 2020, or if you already have taken your RMD sometime prior to 6/30/2020, you may want to consult with your financial advisor and/or tax professional as to what might make sense for your situation. Keep in mind that to execute this rollover payback of the RMD, it must be completed by 8/31/2020.