Significant Changes to the Distribution Rules for IRAs: Taking the Good With the Bad

At the end of 2019, President Donald Trump signed the Further Consolidated Appropriations Act into law. The act, which claims to raise revenue, deals with retirement plans. 

There is some good news and some bad news that go along with the Further Consolidated Appropriations Act.

First, the good news:

Those who make contributions to their retirement plans may now delay when they are required to start taking distributions. Initially, the rules provided for the year after the year in which you turn 70-and-a-half years old.  Now, the IRA owner may hold off taking distributions until age 72 – or with certain plans – until retirement. 

So, if you are born after June 30, 1949, your required minimum distributions do not begin until you are 72 and you may continue to make contributions until then. 

Now for the bad news:

Designated beneficiaries of IRAs (such as children of the IRA owners) are currently accustomed to stretching their distributions over their life span – or more rapidly if the beneficiary chooses to do so. But, if an IRA owner died after Jan. 1, 2020, then the designated beneficiary must withdraw the entire balance of the inherited IRA in a 10- year period. This rule does not apply to the following: the surviving spouse of the IRA owner; a minor- until the minor turns 18; a beneficiary who is not more than 10 years younger than the IRA owner; and beneficiaries who are disabled or chronically ill. 

This new rule is still unsettled in some ways but will have an impact on planning.

At a minimum, the most important thing to do is to make sure that you have designated beneficiaries of your retirement plans. Failing to take this step creates worse problems, and failing to designate beneficiaries will cause the IRA to pass through the deceased’s estate with the payout period being limited to five years. 

If you have questions about your estate plan, retirement plans, and designated pay-out, please call your estate plan counsel. Levine & Levine offers comprehensive estate planning needs to help clients achieve their estate planning goals.