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Required Minimum Distributions (RMD) and IRS rule changes

On December 20, 2019 the Secure Act made major changes to the RMD rules. One of these change affects retirees who turned 70½ years old after December 31, 2019. As of January 1, 2020 the new age for a required minimum distribution is 72. A required minimum distribution (RMD) is the is the minimum amount you must withdrawal from your retirement account each year in order to satisfy IRS requirements.  Your first RMD must be taken by April 1st of the year after you turn 72 and any subsequent RMDs must be taken by December 31st of each year. This ensures that the account holder pays income tax on his or her retirement savings during his or her life.

 A second change is that, in the event the retirement account owner dies, and it is inherited by a designated beneficiary, the funds from Defined Contribution plan and or a traditional IRA must be withdrawn within 10 years, even if the owner had not reached the age of 72. For a non-designated beneficiary, the distribution must be completed within five years of the owner’s death. There are certain exceptions to the rule for a surviving spouse, a child who has not reached 18 years of age and or a person who is disabled or chronically ill.

Although retirees over the age of 59½ can withdraw more than the required minimum amounts each year, these excess withdrawals cannot be rolled over into another retirement account and count toward required distributions in future years.

Each RMD is calculated using the account value from the previous year. RMDs do not need to be taken in one withdrawal; retirees may take any number of withdrawals throughout the year, as long as the total amount withdrawn meets the required minimum, this rule apply to all employer-sponsored retirement plans and to most IRAs. The one exception is that RMD rules do not apply to Roth IRAs while the original owner is alive, because the owner has already paid income taxes on Roth IRA contributions.

If account holders fail to make their RMD each year, they will incur a harsh 50 percent tax penalty on the amount that should have been withdrawn from the account, in addition to regular income tax.

First State Trust Company in our capacity as a paying agent, custodian and directed trustee processes participant payments including RMDs for Defined Contribution Plans.

For more information, please feel free to contact me:
Helen Garvine, Vice President
Phone: (302) 573-5836 / Email:

The posts expressed are views of FSTC and are not intended as advice or recommendations. For informational purposes only.  FSTC does not offer tax or legal advice, professional counsel should be sought for tax or legal advice.

Helen Garvine MBA
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