SECURE Act - 72 is the RMD Age

| January 13, 2020
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The following is part 1 of a 5 part series on the SECURE Act. 

Happy New Year! It’s time to ring in the new year and a new decade! As we look forward to exciting changes ahead, the federal government has also made changes to some important rules and regulations with the passage of the SECURE Act on December 20, 2019.

In the months of January and February, we will use our blog to review the most significant federal rule changes, and how these changes will affect financial planning considerations.

One of the most noteworthy changes is the increase to age 72 from age 70 ½ for required minimum distributions (RMDs) from qualified retirement accounts (IRAs, 401ks, etc.). However, this change has the most immediate impact on those who turn 70 ½ in 2020, and “since only about 20% of retirees take no more than only the amount that they’re actually required to take, any changes in the rules around RMDs will have little effect on the remaining 80% who are already withdrawing more out of their accounts than the IRS requires” (Kitces 2019). 

The RMD age of 72 is only effective for 2020 and subsequent years. Someone who turned 70 ½ in 2019 or earlier (even if they are not yet 72) must continue to take their RMD.

Why the change? Government officials recognize that life expectancy is increasing, and so they do occasionally adjust regulations to keep up with longer lifespans. Also, changing the age to a round age 72 (as opposed to a ½ year) simplifies the planning process: instead of needing to think about when a half birthday is, one simply needs to know the year they turn 72.

Our research indicates that the age of eligibility for making Qualified Charitable Contributions stays the same at 70 ½. This means for those who turn 70 ½ in 2020 who want to make a non-taxable QCD to a charity or church of their choice can do so. Find out more about QCDs here.

Financial Plans & Strategies will continue to provide individualized service for clients who have RMDs, including: an annual summary sent via email or mail in the first quarter of the year, advice and planning for RMDs throughout the year, and staff dedicated to ensuring RMDs are complete by the December 31st deadline each year.

If you have questions about this change, please give our office a call and ask to speak with Mikayla (the RMD coordinator) or an advisor. Stay tuned for more updates on SECURE Act changes in the coming weeks.

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Sources:

  1. https://waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/documents/SECURE%20Act%20section%20by%20section.pdf
  2. https://www.kitces.com/blog/secure-act-2019-stretch-ira-rmd-effective-date-mep-auto-enrollment/
  3. https://www.forbes.com/sites/jamiehopkins/2019/12/18/why-the-secure-act-makes-2020-the-year-of-missed-rmds-from-iras/#3c6be86f4827
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