Now that the SECURE Act (Setting Every Community Up for Retirement Enhancement) has been signed into law, there are several things that you need to know. The first that we’ll tackle are the SECURE Act RMD rules (Required Minimum Distribution) for original owners of IRAs. The change that went into effect (beginning with calendar year 2020) is that the age to begin RMDs has been pushed back to 72, where before it was 70½.
This part of the SECURE Act is beneficial for folks who don’t need the money from their IRAs and other retirement plans, giving them more time before this required withdrawal must begin. It’s not a huge change, but it’s still beneficial for some.
What this means is that you now have an extra 18 months (actually more for about half of you, less for the other half) before you have to start taking RMDs from your IRAs, 401(k)s and other retirement plans.
The change is more helpful to folks who have a birthday in the first half of the year, because in the past (under the 70½ rule), your first year of RMD occurred in the year that you reached age 70. With the new rules, your first year of RMD is always the year you reach 72, giving you two full years to delay that first RMD. If you were born in the second half of the year, under the old rules your first year of RMD occurred in the year that you reached age 71, so you only effectively get a one-year delay with the new rules.
The old rule about the first year’s distribution having a delayed deadline (by April 1 of the year following the year you reach the required age) still applies. So, if your 72nd birthday occurs on July 15, 2022, your first RMD deadline is April 1, 2023. You’d still have to take another RMD for 2023 before December 31, 2023 as well.
Current RMD folks
If you’ve been taking RMDs prior to the end of 2019 – that is, if you reached age 70½ during the 2019 calendar year – you must continue your RMDs as if nothing changed. The new rule applies for folks born any time on or after July 1, 1949 – who would reach 70½ on January 1, 2020. Starting with that date, July 1, 1949 and for any birthdate after that, you fit into the new age 72 rule, and your first RMD will be for the year 2022, with the first year’s deadline being April 1, 2023.
Life expectancy tables to use
Although there is an effort under way to make changes to the current IRS life expectancy tables, these have not been published yet. So you would continue to use the applicable life expectancy table as in the past. Table I (Single Life Table) is primarily for inherited IRAs, Table II (Joint and Last Survivor Table) is for taxpayers who are married to someone more than 10 years younger, and Table III (Uniform Life Table) is for everyone else. Most folks will use Table III to determine their RMDs for their common, non-inherited IRAs and other retirement plans. You can find these tables in IRS Publication 590B, Appendix B.
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And if you’ve come here to learn about queuing waterfowl, I apologize for the confusion. You may want to discuss your question with Lester, my loyal watchduck and self-proclaimed “advisor’s advisor”.
I turn 72 on September 17, 2023. I think I read that I don’t have to start taking my RMD withdrawals until next year when I turn 73 per the new Secure Act 2.0. Is that correct?
Yes. This article is out of date, as of the passage of SECURE 2.0. You are right about your RMD age.
Do these changes apply to an inherited IRA?
No, this only applies to RMDs by the original owner of an IRA. Inherited IRA RMDs are impacted by the CARES Act, which is covered in this article: https://financialducksinarow.com/13981/required-minimum-distributions-for-2020/
Both in our late 60’s, if my brother dies and leaves me an IRA inheritance, I understand I now have 10 years to complete the distribution.
1) Can the distribution all be taken in the 10th year?
2) Then if I die 8 years after my brother, and have not taken a distribution, can a none spouse inherit these funds and take their required distribution on the tenth year after my death?
First of all, if you’re less than 10 years younger than your brother, you are an eligible designated beneficiary and therefore eligible to stretch IRA RMDs out over your lifetime. If you’re more than 10 years younger, then the 10 year payout rule applies to you.
If the 10 year payout rule applies, you can take the money out at any time during the 10 years – no annual payments are necessary. You could wait until December 31 of the 10th year to withdraw the entire balance. You can also take out the money any other time, in any amount, over the 10 years, as long as you complete the withdrawal by the end of the 10th year.
OK. Let me see if I get this straight . . .
I turn 72 in late 2022. Thus, if I understand things correctly, I have to take my first RMD by 1 April 2023. BUT, so as to not take two RMDs in the same year, it would be better tax-wise for me to take the first one by 31 Dec 2022, i.e., in the calendar year in which I turn 72. That is because my second RMD’s deadline is 31 Dec 2023. Have I got it? Thanks.
By jove, I think he’s got it! (Yes, you have interpreted the rules correctly to apply to your situation.)