The amount of time banks and other financial institutions have to notify people with retirement accounts about new rules for taking required minimum distributions (RMDs) has been extended. Under IRS Notice 2020-06, financial institutions have until April 15, 2020 to notify certain people with retirement accounts that no RMD is due for 2020. The new rule was recently enacted under the SECURE Act, increasing the age for RMDs from
70 1/2 to 72.
Before passage of the SECURE Act, financial institutions had until Jan. 31 to inform IRA owners who would turn 70 1/2 in 2020 about the RMD for this year.
For institutions that sent letters to IRA owners with incorrect information, corrected letters must be sent by April 15.
The relief was necessary for institutions that did not have enough time to change their systems after the SECURE Act went into effect at the end of 2019.
RMDs are important to know if you’re over 70, or if you manage the finances of a family member who is, because you must take the required payout on the timeline set out by the IRS or face a penalty equal to 50 percent of the amount you were supposed to take out.
Typically, plan administrators send reminders to IRA owners in January.
Under the SECURE Act, the new beginning date for an IRA owner to take an RMD is April 1 of the calendar year that follows the calendar year in which the individual turned 72, rather than 70 1/2.
If the following scenarios match your circumstances, here’s what you need to do:
- I turned 70 1/2 in 2019 and have not yet taken my RMD for 2019. You must take your 2019 RMD by April 1. The amount you are required to take depends on your account balance as of Dec. 31, 2018. In addition, you are required to take an RMD for 2020 by Dec. 31. The amount of that RMD is based on your retirement account balance as of Dec. 31.
- I turn 70 1/2 in 2020. You have no RMD for 2020 and do not need to take any action.
- I turn 70 1/2 in 2020 and I was so prepared that I already took my RMD for 2020, either in total or in part. As of December, the IRS and the Treasury Department were still evaluating what to do in this situation. Contact your estate planning lawyer for the latest updates.
Should you have questions about how these new rules may impact your retirement savings or estate planning, contact one of our estate planning attorneys. We’ll be glad to answer your questions and address your needs.