RMD ChangesNovember 13, 2019 -
Categorized in: IAG News
Required Minimum Distribution (RMD). If you are over age 70.5 or you inherited a retirement account you know what RMDs are.
RMDs are the absolute minimum amount you must take out your tax-deferred retirement account or inherited retirement account every year to avoid a 50% penalty.
If you have not taken your RMD for 2019, there are only a few weeks left to get it done or the IRS may assess one of the harshest penalties in the tax code when you file your taxes next year.
As we highlighted previously back in April, Congress is considering significant changes to RMDs as part of the SECURE Act. Potential changes include increasing the age at which RMDs begin to age 72 and forcing beneficiaries to empty inherited retirement accounts within 10 years.
The SECURE Act is still stuck in the U.S. Senate, but it is possible that it will be attached to another piece of legislation and passed before the end of this year. We are watching closely.
While Congress dawdles, last week the IRS released proposed new regulations for RMDs that could take effect in 2021.
Back in August 2018 the President signed an executive order requiring the IRS to update the life expectancy tables on which RMD’s distribution periods are based. Those tables have not been updated since 2002.
The IRS’ proposal increases the distribution period used to calculate RMDs by 1.70 years starting at age 70.5. This means if you are age 70.5 and have a $100,000 IRA your RMD would decline from $3,649.64 to $3,436.43 – or about 6%.
The IRS proposal makes smaller adjustments to the distribution period for ages 77 and up so that by the time you are age 100 your RMD would be roughly the same as it is under current rules.
Interestingly, starting at age 105 the IRS proposes gradually increasing the distribution period through age 115. They also proposed adding 5 years to their distribution chart so it would go up to age 120 (for those who like to plan ahead!).
The overall impact of these proposed changes could be relatively small. The IRS estimates that only 20.5% of taxpayers subject to RMDs take only their minimum distribution. The other 79.5% already take more than required and may not be impacted by these proposed changes.
The IRS is now accepting comments on the proposed RMD changes through January 7, 2020 and will be holding a public hearing on January 23, 2020. You can find more information here if you are interested.
As always, we will continue to keep you updated on how your financial plan could be impacted by impending changes to government laws and regulations.
Quote of the week: Winston Churchill: “To improve is to change; to be perfect is to change often.”
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