Required Minimum Distributions: New Age, New Deadline

The SECURE Act has changed the required minimum distribution (RMD) rules. Most of us now have until age 72 to take our first distribution. Learn more so you can develop a strategy to help minimize your tax burden.

Q: Which retirement accounts require RMDs?

A: According to the IRS, RMD rules apply to IRAs, including SEP and SIMPLE IRAs. RMDs don’t apply to Roth IRAs until after the death of the owner. RMDs also apply to 401(k), profit sharing accounts, 403(b) and other defined contribution plans.

Q: When do I have to take my first RMD?

A: If you turned age 70 ½ in 2019, you have to take your first RMD by April 1 of this year. However, if you turn age 70 ½ in 2020 or later, the new SECURE Act rules allow you to delay taking your first RMD until April 1 of the year after you reach age 72. For example, if you turn age 72 in 2022, you have until April 1, 2023, to take your first RMD.

Q: What if I inherit an IRA this year?

A: The new SECURE Act law states that if you inherit a traditional IRA from an owner who dies after Dec. 31, 2019, the entire balance of the IRA must be distributed to the beneficiary within 10 years. Prior rules gave beneficiaries their entire lifetime to take distributions. There are exceptions to the 10-year rule for a surviving spouse, a child who hasn’t reached the age of majority, a disabled or chronically ill person or a person who is not more than 10 years younger than the IRA account owner. Talk to your advisor for further guidance.

Q: What happens if I miss the deadline?

A: If you don’t take your first RMD by your deadline, then you might have to pay a 50% excise tax on the amount that wasn’t distributed. This also triggers a need to file a Form 5329, so consult with your advisor and tax professional for more information.

Q: Do I have to take an RMD if I am still working?

A: If you work past age 72 and are still participating in your employer’s retirement plan, you can delay taking an RMD until April 1 following the calendar year in which you retire (if the retirement plan allows this and you own 5% or less of the company). After that, you must take distributions no later than Dec. 31 of each calendar year. However, if you have an IRA or another retirement plan outside of work, you will need to begin taking RMDs from that account under the standard RMD rules.

Q: What is the potential tax impact of delaying RMDs until age 72?

A: Because the RMD for some individuals starts two years later than previous rules required, it’s possible the RMD could be higher than if that individual started taking them at age 70 ½. In this scenario, it might mean more taxable income. It could also mean this individual is pushed into a higher marginal tax rate and it might trigger increased Medicare premiums. Consult with your advisor and tax professional for guidance on your situation.

Partner With Your Advisor

Consider consulting with your advisor before you approach your RMD age. At Mariner Wealth Advisors, we believe an effective tax strategy should be part of an overall wealth management plan. Your advisor can help with whether it makes sense to shift some of your retirement savings into a Roth IRA to minimize the tax impact of RMDs from your other retirement accounts. Also, if you would like more details on RMDs and how they are calculated, read our article, “Required Minimum Distributions: Get to Know the Basic Rules.”

Sources:

“Retirement Plan and IRA Required Minimum Distributions FAQs,” irs.gov.

“Retirement Topics: RMDs,” irs.gov.

“Why the SECURE Act Makes 2020 the Year of Missed RMDs From IRAs,” forbes.com.

This article is limited to the dissemination of general information pertaining to Mariner Wealth Advisors’ investment advisory services and general economic market conditions. The views expressed are for commentary purposes only and do not take into account any individual personal, financial, or tax considerations. As such, the information contained herein is not intended to be personal legal, investment or tax advice or a solicitation to buy or sell any security or engage in a particular investment strategy. Nothing herein should be relied upon as such, and there is no guarantee that any claims made will come to pass. Any opinions and forecasts contained herein are based on information and sources of information deemed to be reliable, but Mariner Wealth Advisors does not warrant the accuracy of the information that this opinion and forecast is based upon. You should note that the materials are provided “as is” without any express or implied warranties. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision.

Mariner Wealth Advisors (“MWA”), is an SEC registered investment adviser with its principal place of business in the State of Kansas. Registration of an investment adviser does not imply a certain level of skill or training. MWA is in compliance with the current notice filing requirements imposed upon registered investment advisers by those states in which MWA maintains clients. MWA may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by MWA with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about MWA, including fees and services, please contact MWA or refer to the Investment Adviser Public Disclosure website. Please read the disclosure statement carefully before you invest or send money.