On September 16, 2021, Sand Hill CIO Brenda Vingiello, CFA joined the CNBC Halftime Report panel once again and discussed what positive catalysts investors canread more
Making Retirement More SECURE
One of the most common questions I get from clients, especially as they approach retirement, is, “When do I have to start taking money out of my IRA?” Well, the answer to that question just recently changed for some people. In December 2019, Congress signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act which made some key changes not only to the distribution rules, but other aspects of IRAs and retirement accounts as well. Most of these modifications went into effect on January 1, 2020 with the goal to make saving for retirement easier for most Americans.
Required Minimum Distribution (RMD) Timing: Previously, the Required Beginning Date (RBD) for IRA, SEP, 401(k) and Defined Benefit Plan owners to begin taking the annual Required Minimum Distribution (RMD) was age 70 ½—or more specifically, April 1st of the year following the year you turned 70½ for the first distribution only. Given that so many Americans are working longer, the new provision in the SECURE Act has moved the RBD to age 72 for all IRA owners who turn 70 ½ after December 31, 2019. This translates to a birthdate of July 1, 1949 or later. If you fall in this category, your first RMD will be in 2021 and be based on the 12/31/2020 value of your IRA. You still have the choice of pushing your first—and only your first—RMD out until April 1st of 2022, when you turn 73, but that means you’ll take two RMDs in that tax year, the first by April 1st and the second by December 31st. This can be beneficial for some IRA owners with significant earned income in 2021 and only portfolio income in 2022.
If you turned 70 ½ in 2019 or earlier and already took your first RMD, you should plan on continuing to take it before December 31, 2020, although the IRS may provide further guidance on the issue. Whether you’ve taken your first RMD already or will be taking it when you turn 72, always check first with your tax advisor if you are unsure about what to do given your particular situation. The penalty for failure to withdraw the required amount by the deadline is severe—50% of the undistributed RMD amount.
IRA Contributions: If you are working beyond age 70 ½ and have earned income or your spouse does, you can continue to contribute to your IRA or spousal IRA. If you are charitably inclined and plan to use your IRA to make a Qualified Charitable Donation (QCD), be aware that contributions made after age 70 ½ are used dollar for dollar to reduce the amount available for QCD.
Inherited IRAs: If you inherit an IRA or 401(k) from an owner who passes away on or after January 1, 2020, the rules around required withdrawals for beneficiaries have changed. No longer can you “stretch” out the distributions and corresponding taxable income based on your own life expectancy. Generally speaking, the distributions now must be made over a ten-year period unless you are a spouse, a minor child, more than ten years younger than the original IRA owner, or disabled.
This article only covers the changes outlined in the SECURE Act that are most discussed by my clients and doesn’t cover everything. And given that these changes are brand new, more questions are bound to come up as you learn how they impact your personal plans for retirement. As always, your Sand Hill Wealth Manager is here to help you navigate through the decisions and make the best plan for your specific situation.
Jason, Julie. “Readers Still Struggle with The Secure Act’s New Age 72 RMD Rule.” Forbes.com, 22 January 2020.
“The SECURE Act and You.” Fidelity.com, 1 January 2020.
Articles and Commentary
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All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.