There recently have been several significant changes in the rules regarding required minimum distributions (RMDs or MRDs) from retirement plans. MRDs are the mandatory plan payments that generally begin after reaching age 70-1/2.
First, the most notable change was made by the SECURE Act, passed in December 2019. As a result, the age for beginning MRDs was raised to age 72, for those reaching age 70-1/2 after 2019. In other words, if the 70th birthday is before July 1, 2019, the MRD-trigger-age of 70-1/2 applies; if the 70th birthday is after June 30, 2019, the MRD-trigger-age is 72.
The existing rule that delays payment commencement until after retirement if working beyond the MRD-trigger-age, except for “5% owners”, continues for payments from defined contribution plans (e.g., profit sharing, money purchase, 401k and 403b plans) and defined benefit and cash balance pension plans. The 5% owners are each owner of the business that sponsors the plan, who owns more than 5% of the business, and that owner’s parents and children. These 5% owners are not eligible for the delayed MRD commencement while working.
Also, the existing rule that allows the MRD for the first year to be delayed until the following April 1st, with the second MRD paid in that same year by December 31st, remains in effect.
The second significant change regarding MRDs recognizes that life expectancies have gotten longer. As such, new IRS life expectancy tables will be used for MRDs due for the 2022 distribution year and thereafter. The new tables generally will reduce the amount of the MRD payment. For 401k and similar defined contribution plans, this should result in the account balance being larger for longer.
Finally, the pandemic-related ‘‘CARES Act’’, which became law March 2020, suspended MRDs otherwise required to be paid in or for the 2020 calendar year, for defined contribution plans (e.g., profit sharing, money purchase, 401k and 403b plans) but not defined benefit and cash balance pension plans. In this context, suspended means that no MRD had to be taken. This ended December 31, 2020.
There was a limited “window” in 2020 to repay a 2020 MRD that was received but not required. The temporary relief, which allowed a rollover of the payment, ended mid-year last year.