New RMD Limits
New Year, new rules. Congress has passed the SECURE Act (Setting Every Community Up for Retirement Enhancement Act) which became effective January 1, 2020. It brings the most significant changes to the retirement system in over a decade including changes for taking RMD’s which are explored in this article. These changes impact anyone with IRAs, 401(k)s, or any of several other types of employer-sponsored retirement plans that have Required Minimum Distributions (RMDs).
Previously you were required to take your RMDs when reached the age of 70.5. The SECURE ACT raised the RMD age to 72.1. The age increase will only apply to anyone born on or after July 1, 1949.
This will give you extra time to grow your retirement plan before you are required to empty the pool, so-to-speak, and take distributions. It used to be you could not contribute to a pre-tax retirement plan after the age of 70.5, but that has been eliminated. As long as you still have earned income, you can add more to your retirement account via contribution.
If you are already taking RMD’s, this change in delaying RMD’s does not apply to you. The SECURE Act pushed out the date to start RMD’s till age 72.1, but this only applies to those who did not attain age 70.5 by the end of 2019. This, coupled with pending IRS rules around RMD factors, will reduce the amount of money retirees need to withdrawal each year in retirement due to the RMD rules.
RMD’s are calculated by a life expectancy table published by the IRS. The table has remained the same since 2002 (1). There is a separate table for spouses who are younger the deceased spouse by more than 10 years. (2) President Trump has asked that the table be examined to see if a change is in order. The IRS has published the proposed changes, but the current table remains in effect. It is expected the new table will go into effect January 1, 2021.
You should always talk with your tax advisor about questions on tax-related issues.