Three Years, Three Sets of Rules: What You Need to Know About Required IRA Distributions

2020 has been a challenging year. For those subject to retirement account required minimum distributions (RMDs), the challenges of tracking them will continue far past the arrival of a vaccine for Coronavirus. It helps to understand the tax law changes that are behind these new rules:

  • The SECURE Act became law in December 2019. It was intended to expand the number of individuals who could contribute to tax-advantaged retirement accounts and help prevent retirees from outliving their savings. The Act pushed out the age at which retirement plan participants must begin required minimum distributions from 70 ½ to 72 and eliminated the 70 ½ age limit for traditional IRA contributions.
  • The CARES Act was passed by Congress in late March of 2020. One of the Act’s key features is to provide more flexibility related to savings and withdrawals in retirement accounts. This includes the waiver of RMDs in 2020.
  • Revised life expectancy tables were released in November 2020 to reflect that we are living longer. These revisions, initially planned to become effective in 2021, will take effect in 2022 and result in slightly smaller RMDs.


Recap of the RMD rule changes for 2020-2022

2020: RMDs are waived for traditional IRAs, SEP and SIMPLE IRAs, and 401ks (but not defined benefit plans). The waiver also applies to inherited IRAs. And, it allows participants who postponed their first RMD from 2019 into 2020 to forgo both the 2019 and 2020 RMDs.

2021: RMDs will again be required using the current life expectancy tables and are calculated as if the 2020 wavier had not occurred. Non-spouse IRA beneficiaries will calculate their 2021 life expectancy factor by subtracting two years from their 2019 factor.

2022: RMDs will be calculated using the new life expectancy tables. For RMDs, no adjustment will be required to begin using the new tables.

A new set of rules applies to non-spouse beneficiaries who inherited accounts. See our related blog Planning Strategies for the End of the Stretch IRA for more information.

With all of these changes, we recommend working with an advisor who can sort through the nuances and run the calculations for your specific situation. They may suggest tax withholding to avoid any unpleasant surprises at tax-filing time. The IRS will impose a penalty of 50% of the total RMD for those who fail to take their RMD. That is certainly an incentive to get it done right.

Jennifer Nicasio, CFP®
Jennifer joined HTG in 2005. As an advisor, she helps clients make thoughtful and informed decisions on all aspects of their finances. Jennifer is a CERTIFIED FINANCIAL PLANNER™ practitioner and Certified Divorce Financial Analyst®. As a CDFA™ professional, she helps clients understand the short and long-term implications of decisions they are making during the divorce process. Jennifer has a BA from Middlebury College.
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
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