72 is the New 70 ½ for RMDs – But What If You Turned 70 ½ This Year?
As you have likely seen by now, over the weekend President Trump signed the Setting Every Community Up for Retirement Security Act (the “SECURE Act”) into legislation. This is the largest piece of legislation impacting retirement plans since the PPA was enacted in 2006. We will be addressing the impact of this legislation on your plan over a series of blog posts. But since I have already received the same question several times (including from my parents who turned 70 ½ this year and my husband who is an investment advisor and assists clients with RMDs), I thought we would address this issue first as the question is time sensitive.
Under current law, IRA owners must begin receiving distributions from their IRAs no later than the April 1st following the year in which they attain age 70 ½. For retirement plans, the required beginning date that participants must begin taking distributions is the later of the April 1st following the year that the participant attains age 70 ½ or retires, unless the participant is a 5% or more owner and then it is the April 1st of the year following the participant attains age 70 ½ even if they are still working. The SECURE Act changes the age that the required beginning date is based off of from 70 ½ to 72. It is not quite as drastic as 30 being the new 20, but it does briefly delay when most individuals will have to start paying tax on their retirement savings.
So what if a participant attained age 70 ½ during 2019? Does the passage of the SECURE Act mean these participants can delay distributions? Unfortunately, the answer is no (or at least my Dad was displeased by my answer). The SECURE Act only changes the age for participants who attain age 70 ½ after December 31, 2019. Therefore, IRA owners, 5% or more owner-participants, and retired participants who attained 70 ½ at any point during 2019 will still need to take their required minimum distributions by April 1, 2020. They will also still be required to take their required minimum distribution next year.