SECURE Act Update: IRS Provides Required Minimum Distribution Relief

Among its many popular provisions, the SECURE Act extended the age at which one must begin making withdrawals from tax advantaged savings.

The Internal Revenue Service (IRS) has provided regulatory relief to financial institutions that were expected to provide required minimum distribution (RMD) statements to individual retirement account (IRA) owners by January 31.

The relief is tied to the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which extended the age at which RMDs take effect by 18 months, or from age 70 1/2 to age 72.

The regulatory relief is detailed in IRS Notice 2020-6, which acknowledges “the short amount of time after the enactment of the SECURE Act that financial institutions have had to change their systems for furnishing the RMD statement.” Technically, Notice 2020-6 clarifies that if an RMD statement is (errantly) provided for 2020 to an IRA owner who will turn age 70 1/2 during the year, the IRS will not consider the statement to be incorrect. Importantly, the IRS explains, this is only the case if the financial institution notifies the IRA owner no later than April 15 that no RMD is due for 2020.

By way of background, the SECURE Act was enacted on December 20, 2019, after being folded into a bigger federal appropriations bill. It established that the new required beginning date for an IRA owner to begin making withdrawals is April 1 of the calendar year following the calendar year in which the individual attains age 72, rather than April 1 of the calendar year following the calendar year in which the individual attains age 70 1/2.

Under the SECURE Act, this amendment became effective for distributions required to be made after December 31, 2019, with respect to individuals who will age 70 1/2 after that date. As a result of this change, IRA owners who will attain age 70 1/2 in 2020 will not have a required beginning date of April 1, 2021. In turn, this means that these IRA owners (who, prior to enactment of the SECURE Act, would have been required to take minimum distributions from their IRAs for 2020) will have no required minimum distribution for 2020.

The IRS encourages all financial institutions, in communicating these RMD changes, to remind IRA owners who reached age 70 1/2 in 2019, and have not yet taken their 2019 RMDs, that they are still required to take those distributions by April 1, 2020. 

When it comes to compliance with the broader SECURE Act in 2020, sources say, the increase in the age for RMDs, the elimination of the ability of certain beneficiaries to stretch IRA payments over their lifetime, and the exception to the 10% early distribution penalty for distributions for birth or adoption of a child are the most urgent for plan sponsors to address.