All good things must come to an end, and for now, the suspension of required minimum distributions (RMDs) from retirement accounts ended as of December 31, 2020.
Under current law, required minimum distributions will once again be mandatory in 2021.
However, for those who have not yet been required to take an RMD, note that some of the rules regarding who must take an RMD have changed.
The SECURE Act passed on December 19, 2019, raised the age that distributions are required to be taken from your retirement accounts from age 70 ½ to age 72. The change in age only applied to people who had not yet turned age 70 ½ before January 1, 2020. The law did not change the ability for employees working past the age of 70 ½ or 72 to defer taking a required distribution, as long as they did not own a greater than 5% interest in the business they were working.
The SECURE Act also changed the RMD rule for individuals who inherited an IRA or retirement plan.
The good news is that if you inherited a retirement plan from someone who died in 2020 or later, you no longer have to take a required distribution each year. The bad news is that other than the exceptions mentioned below, you will have to liquidate the entire account by the end of the tenth year following the decedent’s date of death. So, for example, someone inheriting an IRA from a parent who died in 2020 would have until December 31, 2030, to completely withdraw the funds from the account.
There are some exceptions to the latter part of the change. The following classes of people who inherit a retirement plan for someone who died in 2020 or later can delay liquidating the entire account beyond ten years:
- Surviving spouse
- Children under the age of 18
- Disabled or chronically ill beneficiaries
- Beneficiaries who are less than ten years younger than the original owner
A surviving spouse can rollover the inherited retirement account into their own retirement account, and if under age 72, have no required minimum distribution. If over the age of 72, they would be required to take a distribution over their life expectancy.
Children under the age of 18 will be required to take a required distribution based on the Single Life expectancy IRS table until they turn age 18. Once they turn age 18, they could stop taking distributions but will b required to liquidate the account entirely at the end of the tenth year.
Disabled or chronically ill beneficiaries and beneficiaries who are less than ten years younger than the decedent can still use the Single Life Expectancy IRS table.
The above rules are admittedly complicated and may have adverse tax consequences if not correctly implemented. If you have any questions about the required minimum distribution rules discussed above, please let us know.