The SECURE act and how it affects RMDs from IRAs

[Brightpool]

I want to address one change in the new SECURE act and how it affects some of us, individually.

The new rule for Required Minimum Distributions from a traditional IRA is that one must take distributions starting the year he or she turns 72. Going from a split year to a full year is confusing. Gotta love the way our hired employees can't stand to make anything simple.

For those who were looking at having to take out money from an IRA under the old rule of 70½ but get to postpone the withdrawals under the new rules, be aware that some of us will get a 1-year change, while others will get a 2-year change to the effects on our overall income and taxes.

If you were born between January 1 and June 30, 1950, you will now have to take your first RMD in 2022 instead of this year. This gives you a delay of 2 years where your IRA and your taxes are concerned.

If you were born between July 1 and December 31, 1950, you will also take your first RMD in 2022, but under the old rule of 70½, you would have had to start in 2021, so that only gives you a delay of 1 year where your IRA and taxes are concerned.

Now for personal advice:

The first year that you take an RMD, the IRA rules will let you wait until April of the following year to take your distribution for the year. Don't do it!

Be sure to take at least your entire RMD from your IRA during the calendar year.

The one exception might be if your taxes during the first year of having to take your RMD would be astronomical while that next year would be a much lower amount for whatever reason, even with taking two RMDs from your IRA in the same year.

Going forward through subsequent years, you just have to take your RMD before December 31 every year to avoid penalties.

Enjoy!

[mountra]

Thanks for the detailed explanation.

I turn 72 in early December this year and plan on taking my RMD before year end. 

What information (and when) does my Broker send to the IRS?

Because we have to use the Joint Life Table, taking the RMD now we would use the IRS factor of 27.9 but waiting until year end this changes to 27 and equates to a larger withdrawal. 

I want to avoid any conflict between my broker and the IRS.

[retiredtraveler]

".....Now for personal advice:

The first year that you take an RMD, the IRA rules will let you wait until April of the following year to take your distribution for the year. Don't do it!.....".

Why not? I want to delay as long as possible.

[GailL1]

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@retiredtraveler wrote:

".....Now for personal advice:

The first year that you take an RMD, the IRA rules will let you wait until April of the following year to take your distribution for the year. Don't do it!.....".

Why not? I want to delay as long as possible.

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Of course, you do but don't get caught in the IRS web of foolery!

If you turn 70.5 in one year and then wait until the following year (before April 1) before you take your 1st RMD, which is ok with the IRS - what happens is that you will get a double whammy on your taxes for that year because your 2nd RMD will also be due before the end of that same year (12/31).

Just because the Secure Act changed the beginning RMD age to 72 (beginning in 2020) from the previous 70.5, you still have to watch out for this double whammy or pay taxes on (2) RMDs in the same year.

From the IRS

When must I receive my required minimum distribution from my IRA?

You must take your first required minimum distribution for the year in which you turn age 72 (70 ½ if you reach 70 ½ before January 1, 2020). However, the first payment can be delayed until April 1 of 2020 if you turn 70½ in 2019  If you reach 70½ in 2020, you have to take your first RMD by April 1 of the year after you reach the age of 72. For all subsequent years, including the year in which you were paid the first RMD by April 1, you must take the RMD by December 31 of the year.

.

[retiredtraveler]

"....If you turn 70.5 in one year and then wait until the following year (before April 1) before you take your 1st RMD, which is ok with the IRS - what happens is that you will get a double whammy on your taxes for that year because your 2nd RMD will also be due before the end of that same year (12/31).....".

Oh duh!  Thank you.