It’s nearing that time again for the deadline to take required minimum distributions from retirement accounts.
April 1, 2020, is the deadline for those who turned 70 ½ in 2019 to take their required minimum distribution from their IRA and workplace retirement plans.
The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) that became law in December adjusted the age at which individuals must begin taking distributions from their retirement plan or IRA from 70-1/2 to 72.
Before 2020, retirement plan participants and IRA owners were generally required to begin taking required minimum distributions, or RMDs, from their plan by April 1 of the year following the year they reached age 70½. The age 70½ requirement was first applied in the retirement plan context in the early 1960s and, until recently, had not been adjusted to account for increases in life expectancy.
For those who turned age 70½ in 2019 or earlier, this new provision would not apply and they must continue to take their annual required minimum distributions under the pre-SECURE rules.
The April 1 deadline is mandatory for owners of traditional IRAs (but not Roth IRAs), as well as most participants in various workplace plans, including 401(k), 403(b) and 457(b) plans. A 50 percent tax normally applies to any required amounts not received by the April 1 deadline.
The deadline only applies to the required distribution for the first year. For all subsequent years, the RMD must be made by Dec. 31. Be aware that a taxpayer who turned 70½ in 2019 (born before July 1, 1949) and receives the first required distribution (for 2019) on April 1, 2020, for example, must still receive the second RMD by Dec. 31, 2020.
Though April 1 is the mandatory date for the first RMD for those who recently turned 70 ½, some people with workplace plans can wait longer to receive their RMD. Employees who are still working usually can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions.
Affected taxpayers who turned 70½ during 2019 must figure the RMD for the first year using the life expectancy as of their birthday in 2019 and their account balance on Dec. 31, 2018. (Worksheets and life expectancy tables can be found here.)
An IRA trustee must either report the amount of the RMD to the IRA owner or offer to calculate it for the owner.
One option for IRA owners is to use a qualified charitable distribution that can be paid directly from an IRA to an eligible charity to meet part or all of the RMD obligation. The maximum annual exclusion for QCDs is $100,000.
Please let us know if we can help in any way.
Carolyn Allen, CPA, is a Tax Manager with Antares Group, Inc. She can be reached at email@example.com.