The SECURE Act has made a major change to the Required Minimum Distribution (RMD) rules. 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.
NOTE: This bill passed the House with a 417-3 vote earlier this summer and President Trump signed it into law today (December 20, 2019). The SECURE Act goes into effect January 1, 2020.
What Changed with the RMD Required Start Date?
Due to people working longer, Congress pushed out when required minimum distributions begin. For anyone who has not already reached age 70.5 by the end of 2019, the new required beginning date will be 72 for RMDs.
Typically, once you hit your required beginning date for RMDs, now 72 for most situations after the SECURE Act, you have to take your first RMD by at least April 1 of the year after you reach 72. So, if you reach age 72 in 2021, you need to take your first RMD by April 1, 2022. The RMD for any year is typically the account balance as of the end of previous year (December 31) divided by a distribution period from the IRS’s “Uniform Lifetime Table.”
Who will this new change impact?
The push of the RMD beginning date from 70.5 to 72 will mostly benefit those who have not yet turned 70.5 and are born in the first half of the year. The reason is because if you turn 70.5 in the second half of the year, you won’t hit age 72 for two more years. However, for those that hit 70.5 early in the year, the change will only push RMDs by one year.
For example, let’s say your birthday is October 15. If you were expected to hit age 70.5 in 2020, on April 15, and you reach age 71 on October 15, then new rules would only push out your required beginning date from 2020 to 2021.
However, if your birthday was instead on April 15, and you did not reach 70.5 until October 15, 2020, then you would not turn age 72 until 2022, essentially pushing out your required beginning date by two years.
Employee Benefit Research Institute (EBRI) examined this type of change, coupled with increasing the Uniform Lifetime Table life expectancies. In fact, the IRS just released in November 2019 'proposed' updates to the Life Expectancy and Distribution Period Tables, which if finalized, would also provide some relief to retirees by reducing the amount of RMDs owed each year to allow money to last longer in retirement. According to the EBRI report, it appears that a one to two year change in RMD beginning date would only have perhaps a 2% to 4% change in total RMDs. As such, while it will have some impact, it would be quite small. If life expectancies are also changed, EBRI saw it could have an impact on decreasing RMDs by up to 8%.
Why is 2020 A Year of Lost RMDs?
If you turn 70.5 by the end of 2019, you will need to start taking RMDs for 2019. The first one needs to come out by April 1, 2020 at the latest. However, if you turn 70.5 after Jan. 1, 2020, you now won’t be required to take an RMD for 2020. In fact, no one will be required to take a 2020 RMD based on turning 70.5 in 2020 or turning 72 in 2020.
It will really be a lost year of required beginning dates for RMDs based on age. Instead, anyone turning 70.5 in 2020 won’t hit age 72 until 2021 or 2022. This means their first RMDs will now have to be out of the account by either April 1, 2022 at the latest (if you reach age 72 in 2021) or by April 1, 2023 at the latest (if you reach age 72 in 2022).
I'm 73 so I've had to take RMD's for the past few years. I'll be interested to see how the Distribution Period numbers change on the IRS RMD worksheet for 2020 and beyond - https://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf
At least, I assume the numbers will change.
The Distribution Period change is set to be discussed at the public hearing scheduled for January 23, 2020. I have not heard when a final decision on any changes may be determined.
If life expectancies are also changed, EBRI saw it could have an impact on decreasing RMDs by up to 8%, changing the Distribution Period (divider factors).
I don't think those numbers will change much either. I really don't need the cash from the RMD and would rather leave it invested, but Uncle Sam...
My wife and I are probably the last few lucky ones, I guess, and were able to retire with pensions plus Social Security.
Same here - we don't need it. It'll just be put into a taxable account. With matching 401(k), profit sharing, equity partner distribution, plus investing and saving taxable money we did way too good of a job saving and investing for retirement. Couldn't spend it all (save stupidly buying jets and mega-million dollar properties) if we tried...
All the RMD does is bump us into a higher tax bracket.
All the RMD does is bump us into a higher tax bracket.
Most people will not be bumped into a higher tax bracket than the tax bracket they were in when they were employed. So, I don't think people can complain too much if RMD bumps taxpayers into a higher tax bracket now that they are retired because the money they deposited into their tax-deferred accounts, along with all the gains they made, were allowed to grow tax-deferred for many years.
Unfortunately for us, that is exactly what happened. Getting bumped into a higher tax bracket. Actually, it is (was) a bit more complicated; as transferring funds from a Traditional IRA to a Roth IRA triggers an income tax event. We are now done with RMD and with the IRA transfers. Next year there will be some tax relief.
If you don't need your RMD for living expenses, you can transfer funds from it directly to a charitable foundation without paying taxes This was also recently made permanent. Ask whomever is holding your IRA about this provision. I recently received a checkbook to make my donations with.
The problem many people have with making significantly large charitable donations (even though they may not 'currently' need the money) is; (1) you don't know what you don't know - meaning you don't know what might take place in the future in terms of health, children's needs, extended family needs, lawsuits, etc. and (2) you want to leave as much money to your spouse, your children and your grandchildren as possible.
I personally do not know how much liquid cash I'd want to have before I felt 100% comfortable there is zero chance I'd ever need it to help my own family or to counter a legal threat. It would likely have to be well into the 8-digit category.
The way I look at it is - I purposely planned well and I worked smart and hard to achieve what I have, and I expect to benefit from what I did over many decades even if that means hoarding more than I currently need. I just don't like the idea of giving (donating) large sums of my money away - especially if the results of my wealth building efforts goes to help people that refuse to help themselves, have made bad decisions in their life or would not appreciate it.
I donate what I consider to be a significant amount of money each year specifically to Hospice and to Scottish Rite Hospital for Children. I learned my lesson decades ago with the Red Cross and large charities like United Way where most of the money is wasted on "administration costs" and only pennies-on-the-dollar ever make it to the people that truly need it, which leaves a very bad taste when it comes to giving your money away. It would leave an equally bad taste if I was giving away someone else's money that was wasted or not appreciated...
And it could also kick in the IRMAA for Medicare Parts B and D.
I was unaware of this: 'What happened to the proposal to raise the RMD age to 75?'
That was a proposal in a bill put together by Sens. Rob Portman and Ben Cardin that is still floating around Congress. Elements of that bipartisan bill, which had about 60 provisions, could still emerge as Congress tackles more retirement-related issues.
One of the possible stumbling blocks for delaying RMDs to 75, though, is the cost to the Treasury in deferring the taxes on those withdrawals by a couple more years.
The SECURE Act has now officially been signed into law...
President Trump signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act into law on December 20, 2019.
The bill was tucked into the 1,700 page, $1.4 trillion Further Consolidated Appropriations Act, 2020 (H.R. 1865, as amended) to fund half the government for the remainder of fiscal year 2020.
The only thing we do not yet know pertaining to Required Minimum Distributions (RMDs) is what the new (revised) IRS Uniform Lifetime Table Life Expectancy Factors (divisors) will be. A new Uniform Lifetime Table is open for public comment next month (January, 2020) and should be established sometime soon thereafter.
And it could also kick in the IRMAA for Medicare Parts B and D.
Craig - That is correct...
Craig - That is correct...
...and of course, this alphabet soup of RMD, QCD, IRMAA, Parts A-D, Plans A-G, etc. is enough to scare our pre-Medicare users here out of their minds. And that's even before talking about Massachusetts, Minnesota and Wisconsin with their non-Plan A-G Medigap options.
Here are the proposed new Uniform Lifetime Table divisor factors along with the current divisor factors that have been in use. It looks like the new divisor factors reflect a decrease in the minimum distribution amount of between 2% and 8% compared to current divisor factors.
(Note: I have provided the RMD amount for both the New and Current divisor factors based on a fixed balance of $1,000,000 being in the account on December 31 of each age year.)
Age New ~ Current • New RMD$ / Current RMD$
70 - 29.1 ~ 27.4 • $34,364.26 / $36,496.35
71 - 28.2 ~ 26.5 • $35,460.99 / $37,735.85
72 - 27.3 ~ 25.6 • $36,630.04 / $39,062.50
73 - 26.4 ~ 24.7 • $37,878.79 / $40,485.83
74 - 25.5 ~ 23.8 • $39,215.69 / $42,016.81
75 - 24.6 ~ 22.9 • $40,650.41 / $43,668.12
76 - 23.7 ~ 22.0 • $42,194.09 / $45,454.55
77 - 22.8 ~ 21.2 • $43,859.65 / $47,169.81
78 - 21.9 ~ 20.3 • $45,662.10 / $49,261.08
79 - 21.0 ~ 19.5 • $47,619.05 / $51,282.05
80 - 20.2 ~ 18.7 • $49,504.95 / $53,475.94
81 - 19.3 ~ 17.9 • $51,813.47 / $55,865.92
82 - 18.4 ~ 17.1 • $54,347.83 / $58,479.53
83 - 17.6 ~ 16.3 • $56,818.18 / $61,349.69
84 - 16.8 ~ 15.5 • $59,523.81 / $64,516.13
85 - 16.0 ~ 14.8 • $62,500.00 / $67,567.57
86 - 15.2 ~ 14.1 • $65,789.47 / $70,921.99
87 - 14.4 ~ 13.4 • $69,444.44 / $74,626.87
88 - 13.6 ~ 12.7 • $73,529.41 / $78,740.16
89 - 12.9 ~ 12.0 • $77,519.38 / $83,333.33
90 - 12.1 ~ 11.4 • $82,644.63 / $87,719.30
91 - 11.4 ~ 10.8 • $87,719.30 / $92,592.59
92 - 10.8 ~ 10.2 • $92,592.59 / $98,039.22
93 - 10.1 ~ 9.6 • $99,009.90 / $104,166.67
94 - 9.5 ~ 9.1 • $105,263.16 / $109,890.11
95 - 8.9 ~ 8.6 • $112,359.55 / $116,279.07
96 - 8.3 ~ 8.1 • $120,481.93 / $123,456.79
97 - 7.8 ~ 7.6 • $128,205.13 / $131,578.95
98 - 7.3 ~ 7.1 • $136,986.30 / $140,845.07
99 - 6.8 ~ 6.7 • $147,058.82 / $149,253.73
Won't be long before the age limit reaches that of the U.S male life expectancy of 78-79. Then you won't have to worry about any distribution amount.
Doesn't affect me anyhow, I retired in 1997.
Ken- I retired almost 20 years ago, but only now am I right on the cusp of having to take RMDs. The SECURE Act has delayed me taking RMDs one extra year.
Actually the SECURE Act was proposed because people are living longer, not living fewer years. The SECURE Act has pushed back RMDs up to two years further out for those people with dedicated tax-deferred retirement accounts that have not yet turned 70½ as of the end of 2019. This gives those people an extra year or two (depending on when they actually turn 72 - either in 2021 or in 2022) for their retirement savings to grow before having to pull money out to pay Uncle Sam the taxes that have been deferred for decades. Also, the new Uniform Lifetime Table's divisor factors (to replace the current table divisor factors that came out almost two decades ago in April, 2002) have been adjusted to decrease the amount of distribution that must be taken. Both of these elements (increased age & adjusted math divisors) of the newly passed SECURE Act combine to allow the retirement savings of [younger] retirees to last them longer...as they live longer.
Note: I stopped at age 99 in my previous post with the new proposed Uniform Lifetime Table divisor factors (because the page format layout of this website doesn't easily allow multiple columns to be posted) even though the new [proposed] Uniform Lifetime Table goes out to age 120+.
If anyone is interested in the proposed divisor factors for age 100 and older, here they are:
PS - I think the recent news that U.S. male life expectancy has dropped is the result of deaths from illegal drug use and deaths and suicides precipitated as a result of the multiple wars and invasions we've participated in this century.
What I find interesting is that just last week I happened to luck into finding out about the SECURE Act. I had no idea there was a proposed change in the works that had already passed in the House and would likely be signed into law two days ago on December 20th. How many people that are affected by this law don't have a clue it even exists? A bunch!
This new law affects all retirees that are already taking RMDs, but there is a significant number of people in a select age group that do not turn 70½ before December 31,2019 (in the 69½-70¼ age range) that I'm sure are [still] planning to take RMDs in 2020 to comply with the previous law that no longer applies after January 1, 2020. I suspect 95% of the people in this select age group are oblivious to the new SECURE Act. I feel sure that some of these people will take their first RMD early in 2020 before finding out that they could have waited either one or two extra years (depending on whether they turn 72 in 2021 or in 2022) to take it. That's a real bummer!
Since the SECURE Act was signed into law on December 20, just 11 days before the new law goes into effect, this only provides 11 days in essence for people to find out about this new law. That is unheard of! It doesn't affect people already taking RMDs as much because the only difference for them is the small divisor change in the proposed Uniform Lifetime Table that lowers the amount they must withdraw. But, for this select group of people that haven't turned 70½ by year-end and don't turn 72 until either 2021 or 2022 - they need to be told promptly before they make a withdrawal they don't 'have to take'.
I'm sure the investment and financial service firms like Fidelity, Vanguard, etc., will do there best to get the word out quickly to their clients, but there remains a significant number of people in that select age range that will not be made aware of the increased age change in the new SECURE Act in time before they unfortunately either make plans to make a withdrawal, or actually make a RMD withdrawal. There will undoubtedly be some people that will sell stocks and cash-in CDs, etc. in their planning strategy to withdraw their RMD when they don't need to if they only knew. Only having 11 days isn't much time to react to a new law that practically no one even knows about, which goes into effect the first day of 2020.
Being in that select age group myself I'm just glad I found out about the SECURE Act by happenstance, because I had planned to make my first-ever RMD withdrawal early in 2020 and have already (past tense) made some changes in investments as a result of the current IRS requirement that is now being replaced. At least I got lucky and found out about it before I made a withdrawal - some won't be as lucky...
PS - Maybe this information will help someone here, or they will tell a family member or friend about it...
For those who turned 70.5 in 2019 and therefore had to start their RMD withdrawals (and the just-approved law still requires those who turned 70.5 this year that they must take their full RMD before the end of the year or face the penalty), what option do they have in 2020? Are they free to not take the RMD in 2020 and face no penalty or having started RMD withdrawals in 2019, must they take the full 2020 RMD at age 71 or be penalized?
The marketwatch website posted in the past day that the president signed the law so it's now in effect.
Having just been enacted into law, I do expect we'll be hearing about this and almost certainly the firms that manage these funds and compute RMDs for affected individuals will be telling their clients what they need to do.
[Updated later] I found this on the Kiplinger site which is more spectifc than just "age 72":
Starting on Jan. 1, 2020, the 70½ RMD rule is changing. The SECURE Act delays distributions for everyone born on July 1, 1949, or later, to age 72.
If you turn 70½ in 2019 then your birthday is June 30, 1949 or before. If you don't turn 70½ by year-end then your birthday is July 1, 1949 or after, and you therefore fall under the new SECURE Act in which you are not required to withdraw RMDs until the year in which you turn 72, which is either 2021 or 2022.
If you turn 70½ in 2019 (birthday is June 30, 1949 or before) you fall under the previous RMD requirement in which you can withdraw your 2019 RMD anytime in 2019, or (since it is your first RMD) you have the option as a first year participate to wait until April 1, 2020 (at the latest) without penalty to withdraw your 2019 RMD. However, if you [do] elect to wait until 2020 (April 1, 2020 at the latest) to withdraw your first (2019) RMD you will need to withdraw RMD a second time in 2020, which makes you taking two RMD withdrawals in one year. Taking two RMDs in one year could likely bump you into a higher tax bracket. It is suggested that most first-timers (with a birthday on June 30, 1949 or before) take their first RMD in 2019 (the year in which you turned 70½) and take their 2020 RMD in 2020.
For those people that turn 70½ by December 31, 2019 (birthday of June 30, 1949 or before) they fall under the previous RMD requirement with respect to when they must withdraw their first RMD (April 1, 2020 at the latest, but preferably sometime in 2019* so two withdrawals don't occur in the same year) with their second RMD anytime in 2020. These people will continue with their yearly RMD withdrawal (2019*, 2020, 2021, 2022 and so forth) as if there is no change - with one exception. That exception is the divisor factor will change slightly (in the future) to lower the minimum amount they must withdraw. Since the new 'proposed' Uniform Lifetime Table (life expectancy divisor factors) have not been established as IRS tax law yet those people that fall under the previous RMD requirement (those who turned 70½ by December 31, 2019 or before) will continue to use the current divisor factors until new ones become IRS tax law.
Hopefully that clears things up...
This is good information, Thanks!!
I hope it helps people to understand it a little better.
It can definitely scramble your brain until you can wrap your head around it all. I think one of the biggest stumbling blocks for people just coming of age for RMD has been the '½ year' aspect where the old RMD rules had you starting RMD when you became 70½. The IRS defines it pretty straightforward, but it trips up some people nevertheless where they are not sure in which year they must make their first withdrawal.
As a matter of fact, if your 70th birthday is in the first half of the year (from January 1 - June 30) then you turn 70½ within the same calendar year as when you turned 70. On the other hand, if your 70th birthday is in the second half of the year (from July 1 - December 31) then you turn 70½ during the subsequent or following year. Frequently some people have gotten confused about which year they must take their first withdrawal because some people turn both 70½ and 71 in the same year, while others turn 70½ in one year and turn 71 in the following year. Now with the new SECURE Act which pushes the RMD age to 72 hopefully that '½ year' complexity will subside - on the grounds that whichever year you turn 72 is the year (anytime within that year) you should have your first RMD withdraw.
I am still working and was not happy that i would have to start the withdrawals in a few years. Now I have the option to leave it in.
That is what investment counselors/managers are for. I happen to have a good one that keeps me well informed of both opportunities and requirements. Deciding when is the best time within the year to take your RMD is a crap shoot, just like any other transaction in selling off stocks or mutual funds. In 2018 I waited until late Dec. when the market was way down … not a good decision.
I do like that idea mentioned earlier of having a check book for QCD payments. I don't think my investment company offers that option but I am going to ask about it. How does that work in verifying the Tax ID and charitable qualification status of the organizations you write the checks to? That is something my investment counselor takes care of when I make a QCD.
...Deciding when is the best time within the year to take your RMD is a crap shoot, just like any other transaction in selling off stocks or mutual funds. In 2018 I waited until late Dec. when the market was way down … not a good decision.
I do like that idea mentioned earlier of having a check book for QCD payments...
This was my first year of RMDs and I took 12 equal monthly payments. That was a bit of manual effort entering everything into my Quicken 13 times (12 months of RMD and an early multi-QCD) but I still like to have it spread out over a year to balance potential market gains or losses. I think I'll go quarterly next year, midway between what we each did this year, alandb.
TIAA doesn't do QCD checkbooks for IRA charity gifts so I have to manually fill a form for TIAA to send out the gifts, then I have to contact each charity after the checks are mailed to ID myself to the charities. I do this in January so that my monthly benefits to me are known. But TIAA is nice in that if I make a mid or late-year QCD—not likely but who knows?—I can have my RMD set to auto-adjust downward my remaining RMDs to adjust for the late QCD and still end the year having just met the RMD.
For those here reading this and who are about to start with RMDs, QCDs are great because they reduce your income rather than being a deduction since deductions only help when you itemize. I hope the reporting of QCDs is easily done when I do my taxes in Feb or so since this coming tax prep will be my first with RMDs and QCDs.
Now we've scared all those turning 72 next year who have their first RMD.
I took a withdrawal at 66 to cover some expenses and it bumped me to the 2nd tier on Medicare. My former employer covers the 1st tier Medicare payment but I have to pay the second tier part.
The thing I like about QCD's is that with the increased standard deduction in current tax law and the financial situation of many retirees, they can no longer itemize deductions. Without itemized deductions you get no tax advantage for charitable contributions you make. With QCD, your charitable contributions are tax exempt (eliminates paying tax on that portion of your RMD) even though you don't itemize.
I think the QCD is an option some retirees are not aware of. If you are making charitable contributions anyway (like to your church), you may as well do it with QCD and let the IRS cover part of it.
...started taking money out of my IRA at that point. But, I figured out how much I could take out without paying taxes; so I always take out approximately $100.00 less than the amount that would trigger taxes and that still meets the requirements of my RMD's. My financial adviser asked me why I wanted to do that and after I told him why, he said, 'that's a really great idea'. I put the money in pretax and now, I am drawing out the money without paying any taxes. I don't know how long I can keep doing that, but with the Secure Act divisor being less than it was, I should be able to keep this up for another 10 years or so before starting to have to pay taxes on the withdrawals. I withdraw money on a monthly basis to compensate for market fluctuations. I have done this for the last 8 years and it works well for me. I'm not saying that this would work for everyone, because everyone's situation is different. I did work at a couple of part-time jobs after I retired and I did have to pay some taxes on the money that I made, but I always got money back at the end of the year because of the tax planning that I had done.
Turning 70-1/2 next year. Need to review/adjust my plans. Thanks for the information.
Yes, you do need to review and adjust your plans. You've got an extra year or two before you turn 72 and when you must begin taking RMD.
I think the continuing degradation of basic life style components which make us more obese and less fit swamps any warfare-related effects in accounting for adverse changes. I agree that illegal drug use increase, particularly off-prescription use of opioids, has been an important change.
Packing all our life expectancy degradation onto our foreign adventures is politics, not public health medicine.
Personal note: 45 years ago I bicycled across the the Charles River to attend the classes for a course in Epidemiology and Biomedical Statics taught on the campus of Harvard Medical School.
Paid the tax a few years before needed but its all in the Market so I made a bunch of money. Uncle Sugar wants your cash, but in my case he wont get it, lol
Instead of RMD I converted to Roth. Paid the tax a few years before needed but its all in the Market so I made a bunch of money. Uncle Sugar wants your cash, but in my case he wont get it, lol
Yeah, I kind of wish I had put the max contribution into Roth IRA instead of using all tax sheltered investments back when I had the earned income. But the Roth IRA was never a complete solution anyway because of the annual investment limit. Also those of us who earned most of their income 18 or more years ago and socked away tax sheltered savings instead of Roth got lucky because income tax rates went down instead of up, meaning those non-Roth tax shelters were worth more back then when we were earning income then they are now when we are doing RMD's. But who would have guessed? My crystal ball was never that good … you just have to do the best you can with the information you have and hope for the best. Knowing the market history, if I could go back and invest the same amounts in different ways than I did, I would be much richer than I am. No point in crying over spilled milk. Like someone else said in an earlier post, everyone's situation is different. I am just thankful for what little I have and for living out my retirement in this great country and I don't stress very much about taxes. One way to look at it is if your investments did so well in a given year that you have to cash some of them in to pay the taxes … well then, you did pretty well that year.
I was given a buyout offer at 60, figured I would increase pension about a few hundred for every year I stayed. Took the offer and never looked back, Wife took SS t 62 also but works pt to keep busy. House paid for, Solar, no electric bill, RM for emergencies, Roth's, wifes 401, annuities. I've been retired 12 years, we've never touched savings yet, always use cash, (CC then pay EOM to get "Reward" points). I calculated RMD versus Roth converging, took a chance, so far its been great.
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