The SECURE Act and RMDs: Today’s Slott Report Mailbag

Thursday, January 30, 2020

By Ian Berger, JD
IRA Analyst
Follow Us on Twitter: @theslottreport

Question:

Hi Ed,

Question on the new SECURE Act: Do you know if there were any changes to the payout period if an estate is the beneficiary of an IRA. Is it still a 5-year payout? Or is it now 10?

Thanks, appreciate your help.

Janet

Answer:

Dear Janet,

The SECURE Act made lots of changes to the IRA rules. But one change it did not make is to the payout rules when the estate — or any other non-individual (except for certain trusts) – is the IRA beneficiary.

As was the case before the SECURE Act, the required distribution depends on whether the owner dies before the owner’s “required beginning date.” That date is April 1 of the year after the year in which the owner attains age 72. If the owner dies before the required beginning date, the entire account must be paid out by December 31 of the fifth year following death.  If the owner dies on or after that date, annual required distributions must be made over the remaining life expectancy of the owner (had he lived) under the IRS Single Life Expectancy Table.

These accelerated payout rules are one reason why it’s usually better to designate an individual as IRA beneficiary rather than the estate.

Question:

Please help. I am confused by the new rules. My birthday is July 16, 1949. When must I start receiving required minimum distributions (RMDs)? Do I need to take it this year?

Thank you.

Answer:

Don’t feel bad. Lots of folks are confused about the new SECURE Act rules.

And consider yourself lucky. Since you were born on or after July 1, 1949, you get to take advantage of the new RMD rules that delay the first RMD year to age 72.  So, you don’t have an RMD in 2020. Your first RMD will be for 2021 (the year you turn age 72). If you want, you can delay that RMD until April 1, 2022, but that would mean that you would have two taxable RMDs for 2022 – the 2021 RMD due by April 1, 2022 and the 2022 RMD due by December 31, 2022.

If you were born before July 1, 1949, you would get no benefit from the new rules. Your RMDs would need to be started or continued under the old rules.

 

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