As a result of widespread job loss during the coronavirus pandemic, many suddenly-unemployed persons who dipped into retirement accounts are saddled with outstanding loans from company savings plans. Advisers can play a valuable role in helping these clients by understanding how the “loan offset” rules work, how the CARES Act affects loan offsets, and how offsets differ from “deemed distributions.”
Ed Slott, CPA, is one of the nation's top experts on retirement plans. For more than 30 years, he has educated both consumers and financial advisors on retirement tax-saving strategies. Most recently, he published Ed Slott's Retirement Decisions Guide: 2020 Edition and is the host of several popular public television specials, including his latest, Retire Safe & Secure! With Ed Slott.
The age when older Americans must start making withdrawals from retirement accounts could change yet again.
Under a provision in proposed retirement legislation pending in Congress, required minimum distributions, or RMDs, would start at age 75 by 2032, up from age 72 — which only took effect last year after the 2019 Secure Act raised it from age 70½.
I figure Ed Slott has been asked this question a million times, “How much do I need to retire?”, but I ask it anyway. Like anything in life, the true answer is a little more nuanced. My guest, Ed Slott, is a CPA and accomplished author of financial and retirement-focused books, including his latest, The New Retirement Savings Time Bomb.
Any IRA owner turning age 72 this year will have a required minimum distribution due for 2021, but the due date for taking that RMD will depend on the half of the year in which they were born. June 30 is the cut-off date when the transition to the SECURE Act age 72 RMD rule becomes complete. The SECURE Act raised the RMD age for owners of individual retirement account owners and certain retirement plan participants from 70½ to 72, but only for those who turned 70½ in 2020 or later.
The issue involves the 10-year rule that most non-spouse designated beneficiaries (like adult children or grandchildren, and certain qualifying trusts) who inherit individual retirement accounts will be subject to under the SECURE Act. It was expected that the 10-year rule would work the same way as the 5-year rule: There wouldn’t be annual required minimum distributions, but the entire inherited IRA account balance would have to be withdrawn by the end of the 10-year term.
This is my third update on the confusion about the 10-year rule on required minimum distributions under the SECURE Act, and it won’t be the last. Last Thursday, the IRS acknowledged that IRS Publication 590-B, which contains the tax rules for withdrawing funds from IRAs, is being revised, likely to fix the error I wrote about twice before here, in “IRS: SECURE Act’s 10-year RMD rule is not w
Congress has come up with what some are calling SECURE 2.0, or Son of SECURE — a bill entitled Securing a Stronger Retirement Act that includes many positive changes to encourage retirement savings. However, one seemingly pointless proposal in the legislation would raise the required minimum distribution age from 72 to 75 over 10 years. Most advisers might argue that consumers will probably love this.
If you are working with an eye towards retirement or even semi-retirement, you are probably (hopefully) saving more than you could in the past in your retirement accounts. You may have paid off the mortgage and paid for college and other heavy expenses of raising children. That all sounds like you are on your way, except for one big problem I call the "ticking tax time bomb."