The rules for required minimum distributions (RMDs) changed when the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) became law on December 20, 2019. Recent proposed regulations could soon change the rules again, affecting both original owners of accounts and beneficiaries who inherited them.
Proposal: Increase RMD Age to 75
Prior to the SECURE Act, RMDs were generally applicable beginning in the year when an individual reached age 70 ½. The SECURE Act pushed back the general RMD starting age to 72, effective for those individuals attaining age 70 ½ on or after January 1, 2020. The House of Representatives recently voted to delay the age at which people must start taking required distributions to age 75. If the bill becomes law, it would mark the second time in three years that Congress raised the required distribution age.
Proposal: RMDs for Inherited IRAs
For many individuals, the most significant change made by the SECURE Act was the introduction of the 10-year Rule. Under this most non-spouse beneficiaries are required to distribute the entirety of their inherited retirement accounts by the end of the tenth year after the decedent’s death. There are exceptions for surviving spouses, disabled heirs and the children of account owners who are under age 21. These beneficiaries can continue to use the previous rules, which allowed them to spread required withdrawal over their own life expectancies.
General consensus was that the designated beneficiary would be allowed to distribute the entire account as a lump sum at the end of the 10th year (instead of taking annual distributions to empty the account). The new proposed regulations seek to implement a system that would require the designated beneficiary to comply with the 10-year distribution requirement in addition to taking annual RMDs during that period. This would affect designated beneficiaries inheriting from retirement account owners who died on or after their own Required Beginning Date. Designated beneficiaries who inherit from someone who dies before their Required Beginning Date would not be subject to annual required distributions, although they must empty the account by the 10-year deadline.
It is important to highlight, at the time of this writing, these are proposed changes and not law. However, the proposed regulations would generally apply for purposes of determining RMDs for calendar years beginning on or after January 1, 2022.
The proposed regulations are subject to public comment until May 25, 2022, and a public hearing is scheduled for June 15, 2022. And while the proposed regulations can still be amended before they are finalized, taxpayers should start preparing themselves now for how their individual situations might be affected.