“It’s Complicated” is a relationship status used on social media by people when their relationship is full of tension and they find themselves in a mixed state. With Valentine’s Day next week and the recent passing of the Secure Act 2.0, I made the association between this term and the current status of Required Minimum Distribution (RMD) rules. “It’s Complicated” is the most justifiable definition of current RMD regulation.
The signing of the Secure Act in 2019 caused a major heartache to IRA owners, beneficiaries and advisors alike. A reminder that nothing in the tax code is “together forever.”
The Secure Act teased IRA owners nearing the magic age of 70.5, by moving the age that RMDs begin, also called the Required Beginning Date, from 70.5 to 72. Though it felt noncommittal, it wasn’t necessarily toxic for those wanting another year to defer taxes and grow their accounts. Still, it added to the muddling of understanding.
In what felt like a breakup, the longtime ability for those inheriting an IRA to stretch their account withdrawals over their lifetimes came to an end. Beginning in 2020, if you were a named beneficiary (and did not qualify as an eligible designated beneficiary) of an Inherited IRA account, you have a 10-year timeline and a ticking clock to distribute the entire account balance. You could say the stretch IRA is “never ever getting back together” with lifetime RMDs.
Advisors are called to play Cupid to keep clients from becoming star-crossed with incorrect calculations and flirting with missed RMD penalties. Rules vary depending on age and relationship for IRA owners and Inherited IRA beneficiaries to follow, which will inevitably cause frustration to those new to the RMD game.
And then…in Congressional fashion, a 2.0 version of the Secure Act was signed at the end of 2022. For RMDs, this version hasn’t caused as much disruption as the original bill but still made some notable changes.
If you are an owner of an IRA or retirement plan account in your name, read on. Pull out your Driver’s License and review your DOB. Born in 1950 or earlier, you are “in a relationship” with RMDs. Continue going steady. Calculate your required amount by dividing your account’s previous year-end balance by the IRS Uniform Lifetime factor determined by your age at the end of the current year. If your true love (aka spouse) is more than 10 years younger than you, the IRS Joint Life & Last Survivor table will be used for your factor. For account owners born after 1950 and before 1960, your 73rd birthday will mark the start of your required distributions. And for those of us born after 1959, the RMD age increases to the treasured age of 75.
Are you smitten with these new rules? RMD regulation is a complicated love affair. Find an advisor who has a passion for understanding your requirements, like a local CFP® Professional.
Published in the Victoria Advocate
Beth Koonce is a CFP® Professional and Lead Advisor with KMH Wealth Management, LLC.