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Ask the Expert: New deadline for retirement account RMDs

I've heard there's a new deadline for taking requirement minimum distributions (RMDs) from retirement accounts. Is that true?

Yes. The change is part of the SECURE Act, a last-minute addition to a $1.4 trillion package of fiscal 2020 spending bills Congress passed just before Christmas to avert a federal government shutdown.

The deadline for taking the first RMD from tax-deferred retirement accounts (IRAs, 401(k), 403(b), and 457 plans) is now April 1 of the year after you turn 72. That deadline applies to everyone who was under age 70½ on Dec. 31, 2019.

The law also lifts the previous age 70½ cap on traditional IRA contributions. As long as you work, you can now continue contributing to a traditional IRA.

Perhaps the most dramatic change affects retirement account beneficiaries, most of whom must now empty inherited accounts within 10 years of the original owner's death. Previously, all beneficiaries could take RMDs from inherited accounts over their own life expectancies.

The new 10-year payout rule applies to all beneficiaries except surviving spouses; minor children (but not grandchildren) until majority, or age 26 if still in school; and beneficiaries who are disabled, chronically ill, or not more than 10 years younger than the original account owner. People who inherited a retirement account before 2020 can keep their existing payout schedules, says Ed Slott, a Rockville Centre tax accountant.

The new law was signed on Dec. 20, 2019, and became effective Jan. 1, 2020. It's extremely unusual for major changes in tax law to be made effective almost immediately, notes Slott. "It may take the IRS a year to write rules clarifying the changes."

The bottom line

A new federal law has changed the first RMD deadline for retirement account owners and eliminated the lifetime payout schedule for most beneficiaries.

More information

nwsdy.li/KitcesSECUREAct

nwsdy.li/SlottSECUREAct

TO ASK THE EXPERT Send questions to Ask the Expert/Act 2, Newsday, 6 Corporate Center Dr., Melville, NY 11747, or email act2@newsday.com. Include your name, address and phone numbers. Questions can be answered only in this column. Advice is offered as general guidance. Check with your own consultants for your specific needs.

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