Recent Changes to RMDs
May 20, 2020 

This post is intended to summarize some recent legislative changes that that will impact anyone taking Required Minimum Distributions (RMDs) from their IRA or 401k:

  • RMDs from IRAs have been suspended for 2020. If you haven’t taken an RMD yet, you can skip it for this year.
    • This year’s CARES Act waived RMDs for everyone for one year for IRAs, inherited IRAs, and 401k accounts. Therefore, we will not be taking any 2020 distributions on your behalf this year unless you specifically request access to the funds.
    • For those of you for whom RMDs represented a material percentage of your annual income, you may want to consider still taking a distribution, but converting it to a Roth IRA this year to the extent you do not need the proceeds. It may be a way to convert IRA assets in a year that you find yourself in a lower tax bracket.
  • Recent changes
    • Last year’s SECURE Act made some changes to IRAs, including pushing back the minimum age for people who were not yet required to pay RMDs from 70.5 to 72. The SECURE Act had some downsides too – one of which was that withdrawals from an inherited IRA can no longer be stretched for the lifetime of the recipient.  Newly inherited IRAs must now be withdrawn within 10 years (some exceptions apply – including for a surviving spouse).
    • The implications of the change may impact your estate planning. Two examples stand out:
      1. It becomes more beneficial to name your spouse rather than your children or grandchildren as a beneficiary, and
      2. Roth 401ks just became relatively more attractive. They are also subject to the 10 year rule, but since they can be withdrawn tax free, they will not be subject to a middle-aged recipient’s relatively high tax brackets.  Also, the recipient can let the money continue to grow tax free for the full 10 years and withdraw at the end of the period, rather than working it down gradually over each of the ten years.

Please reach out to us if you have questions about this update, or any other financial issues.  We hope you all stay healthy and stay positive.  Our next update will concern tax changes impacting charitable contributions, and how they might affect your gifting strategies – stay tuned for that post next week!