The SECURE Act: Required Minimum Distributions (RMDs) and Beneficiary Designations

By Rosanne Rogé, CFP^®, CSA^TM, RFG^SM and Christine Parisi, CFP^®

The SECURE Act (Setting Every Community Up for Retirement Enhancement) that went into effect on January 1, 2020, changed the age at which your Required Minimum Distributions (RMDs) are required to begin from age 70 ½ to age 72.

Individuals owning assets in an IRA account must take distributions upon attainment of age 72. However, the distribution is not required to be taken until April 1 of the year following their 72^nd birthday.  If they choose to delay receipt of the age 72 RMD until the following April, then they will have to take two distributions that year (one for age 72, and one for age 73) which could lead to adverse tax consequences.

The tax law changes made by the SECURE Act affected distribution rules regarding inherited IRAs by a non-spouse beneficiary, eliminating the “stretch provision” and replacing it with the 10-year rule. Non-spouses and certain trusts that are named as beneficiaries, are now required to distribute inherited IRA account assets within 10 years of the IRA owner’s passing.

The tax law changes do not apply to Eligible Designated Beneficiaries (EDBs), who are still able to use the “stretch provision.” These include:

1. Spouses
2. Minor Children of Decedent
3. Disabled Persons
4. Chronically Ill
5. Dependents not more than 10 years younger
6. Certain Trusts

Other entities, such as charities, the IRA owner’s estate, and certain trusts, may be required to distribute IRA account assets within five years under the five-year rule. Another important change made by the SECURE Act allows those still employed past age 70 ½ to contribute to a traditional IRA.

Clients, especially those with trusts as beneficiaries, should reach out to their estate planning attorney to discuss any revisions that may need to be made for their IRA accounts.

Be sure to speak with a CERTIFIED FINANCIAL PLANNER^TM (CFP^®), estate planning attorney, and a qualified tax professional to find out if your financial plan has been affected by the SECURE Act.

R.W. Rogé & Company, Inc. is a fee-only financial planning and wealth management firm serving clients locally and virtually across the country, with Long Island, New York and Ipswich, Massachusetts office locations. We help clients Plan, Achieve, and Live^® the life they want since 1986. To learn more about how we do this, click here. To discuss your financial future with a knowledgeable Senior Wealth Advisor, contact us at 631.218.0077 or at info@rwroge.com for a complimentary consultation.