Did you know the SECURE Act affects WHEN you’re required to start receiving retirement funds? The end of 2019 saw passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act which, among other things, brings some key changes to Individual Retirement Account (IRA) rules. Of interest to those in or near retirement is the change to the Required Minimum Distribution (RMD) start date. Let’s look at the way the SECURE Act changes RMDs.

How does this change your Traditional (including rollover) IRAs?

  • Traditional IRAs allow individuals to set aside money for retirement. Earnings are not taxed until withdrawn. Of course, you can’t defer taxes indefinitely and there comes a day when you are required to start making withdrawals from your Traditional IRA account. The amount that you are required to withdraw is called a Required Minimum Distribution (RMD). It is calculated annually by dividing the prior-year ending account value by a life-expectancy factor.
    • Previous law required individuals to start taking RMDs by age 70.5 with the ability to delay the 1st year’s RMD until April 1 of the following year.
    • The SECURE Act pushed the start date to age 72 for anyone who was not yet age 70.5 as of December 31, 2019. This gives those turning 70.5 in 2020 or later extra time to grow their money tax deferred.
      • IRA participants will be able to delay the 1st year RMD until April 1 of the year after they turn 72.
    • If you turned age 70.5 on or before December 31, 2019, you are subject to the prior RMD rules and will need to continue taking RMDs in 2020.

How does this change your Roth IRAs?

  • Roth IRAs do NOT have RMDs. 

How does this change your QCDs?

  • Qualified Charitable Distributions (QCDs) from IRA accounts are still available!
    • We have written about this special provision before. Those age 70.5 can distribute money from an IRA directly to a charity.  The amount distributed is excluded from taxable income and counts toward the individual’s RMD for the year. This is a great way to reduce the tax consequences of your RMD. For more information see my previous blog Tax Savings on Qualified Charitable Distributions from IRAs.
    • The eligibility age for QCDs remains age 70.5.
      • If you are under age 72, you don’t have an RMD so any charitable distribution you make from your IRA will not reduce your (non-existent!) RMD that year. The amount distributed, however, will still be removed from your IRA tax-free. When you reach RMD age, your IRA account balance will be lower, and you will thus have a lower RMD amount at that time than you would have without the QCD.  

We can help you with the SECURE Act

You can be fully prepared for all the ways the SECURE Act changes RMDs! We at Bartley Financial will continue to review changes enacted as part of the SECURE Act legislation and will follow up with other planning ideas in the following months. For a quick rundown of the high impact changes included in the SECURE Act, we recommend that you check out the summary offered by Fidelity.com.

Please don’t hesitate to contact us with any questions!

At Bartley Financial, we care about way more than just your finances. We care about the life you’re trying to live (finances are just a piece of that!).

Call us anytime you need fresh perspective on your finances or help achieving your goals. We’re happy to help!