For People Who Turn 70 1/2 After December 31, 2019
Included as part of a government spending bill that was signed into law December 20, 2019, The Setting Every Community up for Retirement Enhancement Act of 2019 (the Secure Act) changes the age at which individuals must begin taking the required minimum distributions (RMDs) from retirement accounts. The SECURE Act increases the age at which individuals must begin taking RMDs to 72 from 70 1/2. However, the new law only applies to people who turned 70 1/2 after December 31, 2019. If a person turned 70 1/2 in 2019, or have already been required to take RMDs, the law does not apply.
Are You 70½ or Older?
Retirement funds cannot be kept in an account indefinitely. Generally an individual has to start taking withdrawals from an IRA, SIMPLE IRA, SEP IRA, or retirement plan account when he/she reaches age 70½.
Roth IRAs do not require withdrawals until after the death of the owner.
The required minimum distribution is the minimum amount an individual must withdraw from his/her account each year. The RMD are mandatory, minimum yearly withdrawals that generally must be taken starting in the year the retirement account holder turns 70½. When an individual turns 70½, they must start taking a required minimum distribution (RMD) or withdrawal from their retirement funds.
Take Distribution by December 31st
Remember to Take RMD (Required Minimum Distribution) by December 31st. An individual generally has until April 1 of the year following the calendar year he/she turns age 70½ to take his/her first MRD. However, it is recommended that the individual take the first RMD by December 31st of the year that he/she turned 70½, in order to avoid having to take two distributions in the same year. For each subsequent year after your required beginning date, you must withdraw your RMD by December 31.
Penalty for Not Taking a Scheduled Distribution
Forgetting to take a RMD can result in a significant charge. If an individual does not take any distributions, or if the distributions are not large enough, he/she may have to pay a 50% excise tax on the amount not distributed as required.
How to Determine Your Distribution Amount
Generally, the amount of the RMD is determined by dividing the adjusted market value of the individual’s account as of December 31 of the prior year by an applicable life expectancy factor. The Uniform Lifetime Table (PDF) can be used to find the individual’s life expectancy factor or the Fidelity Minimum Required Distribution Calculator to help determine what will be required to withdraw.
William F. Cahalane, CPA Noreen M. Cahalane EA accounting and tax services for individuals and small business