At the end of last year, the SECURE Act brought many changes to retirement plans including raising the required minimum distribution (RMD) age to 72. Previously, the RMD age was 70 ½. The change applies to individuals are who meet the RMD age requirement after December 31, 2019. This change was designed to acknowledge the fact that many Americans are living longer and having longer productive years.
In addition to raising the distribution age, the act also allows individuals to continue contributing to their retirement accounts after the age of 70 ½ as long as they are contributing earned income. Previously, a participant in a qualified retirement plan had to begin receiving minimum distributions on April 1 of the calendar year following the later of the year in which a participant turns 70 ½ or in the calendar year in which the participant retires. What should plan sponsors do?
Plan sponsors still have the ability to choose an earlier distribution age, for example, and a specific set retirement age, and require participants to take distributions at that point. Plans that want to take advantage of the new RMD of 72 will be required to amend plan documents to reflect this change.
This is a good time to review all plan provisions that govern plan distributions. Retirement benefit plans have many policies and procedures of this on notifying plan participants of upcoming requirements for minimum distributions. Because the age has changed to 72 going forward, there will be a period of time where there are two different ages that must be tracked for notification purposes. Some participants will still need to comply with the older 70 ½ RMD age while others will be able to choose between the previous distribution age and the new. Plans will want to carefully track these changes and choices to ensure individuals can take advantage of tax-free roll overs and mandatory 20% withholding of amounts not rolled over.
Only about 20% of retirees take the minimum amount from their retirement plans, most draw significantly more. The Act does not change the age that plan participants can make a Qualified Charitable Distribution from the IRA. Overall, this change is a benefit to taxpayers who are either still working or can afford to delay withdrawing funds.
The team of benefit attorneys at Hall Benefits Law helps our clients manage legislative and regulatory changes to retirement plans, including handling changes to plan documents and advising on how to implement corresponding procedures. To learn more or to get help making changes to your plans today, call 678-439-6236 today or visit the Hall Benefits Law website.
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