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The SECURE and CARES Acts Change Required Minimum Distributions
A key aspect of saving for retirement through qualified retirement plans and IRAs is deferring taxes until required minimum distributions (RMD) begin. Even with Roth IRAs, beneficiaries who inherit them must also follow RMD rules despite the tax-free treatment of the distributions. The failure to take RMDs can result in a 50% penalty. The SECURE Act (P.L. 116-94) and the CARES Act (P.L. 116-136) made dramatic changes in RMD rules for 2020 and beyond.
Changes for 2020
The CARES Act provides a waiver for RMDs from defined contribution plans (e.g., 401(k) plans) and IRAs for 2020. Those who would otherwise be required to take an RMD for 2020 need not do so. The waiver also applies to the 2019 RMD for an individual who has a required beginning date of April 1, 2020 (someone who attained age 70½ in 2019 but did not take the first RMD by Dec. 31, 2019, postponing it to April 1, 2020). Of course, distributions to those subject to RMDs can exceed required amounts at any time.
The waiver for 2020 does not change the required beginning date. For example, if an employee attained age 70½ before Jan. 1, 2020, and retires in the 2020 calendar year, that employee's required beginning date is April 1, 2021. The employee is not required to receive an RMD for 2020 before April 1, 2021, but must still receive the RMD for the 2021 calendar year by Dec. 31, 2021. Such individual may decide to take the first RMD in 2020 to avoid having to take two RMDs in 2021.
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