The SECURE Act recognizes that many Americans are remaining in the work force until well after age 65, and living longer. So, one of the many provisions of the act signed into law last week was the delay to age 72 for participants turning age 70 ½ after 2019.
If you turned 70 ½ during 2019 or previously there is no change for you. You still must take your RMDs on schedule or face a 50% excise tax on the amount not timely withdrawn.
However, if you turn 70 ½ in 2020 or any time after, then you need not begin RMDs until you reach age 72. This gives you another two years to accumulate and two less years to distribute your nest egg.
This particular provision of the act gives future retirees valuable options. Delaying retirement and/or deferring your RMDs for even a couple years can be a major positive impact on your retirement projections.
Some investors may choose to use the additional two-year window to strategically convert a portion of their accumulated retirement benefits into Roth IRAs. This might reduce the total tax drag on IRA distributions and reduce future RMDs. However, careful consideration of your individual tax situation is a must.
Strangely enough, if you qualify to delay your RMDs until age 72, you can still make Qualified Charitable Distributions from your IRA’s starting at age 70 ½.
You can, of course, still withdraw from your traditional IRAs or Pension Plans anytime after age 59 ½ penalty free.
Down the road, the IRS is considering revising and liberalizing the Annuity Tables that determine how each year’s RMD is calculated. When implemented, the new tables will recognize the longer life expectancy retirees are expecting.
We are here to help. Contact your advisor to see how this and other feature might impact you.