The age at which required minimum distributions (RMDs) start has been adjusted twice in the past five years based on new law. It was 70 ½ prior to the passage of the SECURE Act in December 2019, which pushed the required age back to 72 for those who had not turned 70 ½ prior to January 2020. Following the SECURE Act 2.0 the age to begin taking RMDs depends on the year in which you were born. For people born before 7/1/1949 the RMD applicable age is 70 1/2. Those born on or after 7/1/1949, or in 1950, have an RMD applicable age of 72. Those born between between 1951 and 1958 have an RMD applicable age of 73. Those born in 1960 or later will not be subject to RMDs until age 75. Due to an oversight in the legislation those born in 1959 will require guidance on whether their RMD applicable age is 73 or 75. 

Starting in the year your RMDs begin, and every year thereafter, the Internal Revenue Service (IRS) mandates that a certain amount of funds be withdrawn. These required distributions must be withdrawn by December 31 each year. Your initial distribution may be deferred until April 1 of the year after you reach your required beginning age, but the following year’s distribution will also be required, resulting in two RMDs in one tax year. While some clients benefit by deferring their initial distribution (and resulting tax deferral) for one calendar year, other clients are pushed into a higher tax bracket as a result of receiving two distributions in the subsequent year.

For those interested in supporting charitable organizations, especially those who do not itemize their deductions on their tax return, qualified charitable distributions (QCDs) made directly from an IRA to a charitable organization may be attractive as they are not subject to income tax, reduce adjusted gross income and are eligible to satisfy the RMD requirement. QCDs are allowed for individuals over age 70 1/2 and may not exceed $100,000 in 2023.  As a result of SECURE Act 2.0, the annual $100,000 limit for QCDs will be indexed for inflation, effective 2024 and each year thereafter. 

The SECURE Act also replaced the lifetime “stretch” provision for certain beneficiaries of inherited IRAs and other retirement accounts after 2020 with a 10-year distribution requirement. The 10-year distribution requirement imposed by the SECURE Act for beneficiaries inheriting an IRA has caused many individuals to adjust their plans. Strategies for mitigating the future tax impact to heirs include increasing withdrawals above the required annual minimums, converting a portion or the full IRA balance to a Roth IRA and including charitable beneficiaries, which are not subject to income or estate taxes.