GETTING SECURE: PART 2
By Gary Silverman, CFP®
This is the second article in my series about the SECURE Act. Today I want to cover one of the more pressing topics…age 70-1/2.
Up until New Year’s Eve, if you had turned age 70-1/2, you were required to start your Traditional IRA Required Minimum Distributions (RMD). Folks have wondered for many years where the age 70-1/2 came from. Well, wonder no more. No, I don’t have the answer, but the RMD triggering age is no longer 70-1/2. It is now age 72.
These new rules only apply to someone who did not turn 70-1/2 before this year. So, if you weren’t going to turn 70-1/2 until this year or later, then your RMD triggering age is now 72 years old. But if you turned 70-1/2 in 2019 or earlier you are under the old rules.
What if you turned 70-1/2 last year, but delayed your RMD until this year (which you are allowed to do the first year, to April 1)? Sorry, but it’s not the date you take your first RMD, but the date you triggered the need to start taking them, and that was prior to the new law. Therefore, you still have to take your 2019 RMD by April 1 and then the 2020 RMD this year as well, even if you don’t turn 72 until 2021.
Most people start drawing from their IRAs before they have to, so this will only make a difference to those who are still working or otherwise could afford to wait (perhaps due to investments or a good pension plan). For them this allows the ability to delay taxes a little bit longer. While this change will get a lot of headlines, it really has a small effect to a small number of people. Probably the best thing about it is that it is easier to know when you are 72 than when you are 70-1/2.
At the end of last year, I was reminding everyone about Qualified Charitable Distributions (QCDs). This was the ability of someone 70-1/2 or older to be able to donate funds from a Traditional IRA to a charity tax-free. A neat feature of this tax rule is that the distributions could also act as the RMD for that year. So, has this changed in some way?
The short answer is no. You can still start doing QCDs up to $100,000 each year the day you turn 70-1/2 and onward. (Yes, the 70-1/2 age continues to haunt us.)
What about 401(k)s? Yes, their RMD triggering age moved up to 72 as well. But there’s one other feature to keep in mind with 401(k)s: If you are still working for the employer who sponsors the plan, you can delay your RMDs until after you retire. With the workforce getting older, this can benefit some.
Sorry, business owners, but if you own 5% of more of the company, you have to start your RMDs on time.
Next week we continue with what I think is truly the biggest change coming from the SECURE Act: Beneficiary IRAs and the “stretch” option.
Gary Silverman, CFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing