Participants in retirement plans are generally required to take Required Minimum Distributions (RMDs) beginning with the year in which they turn age 70½ (if that year was before 2020), or the year in which they turn age 72 (if that year is 2020 or later). Basically, participants subject to RMDs must take a fraction (depending on their age) of their account balances as of the prior December 31 as taxable income.
But not so fast! Last week, Senator Ed Markey (D-MA) introduced proposed legislation (Senate Bill 3527) which would suspend the RMD withdrawal requirement for 2020 for a variety of retirement plan types, including qualified 401(k) / profit sharing plans, public sector 403(b) plans, and Individual Retirement Account plans (IRAs). Note that the proposed legislation, as written, does not apply to RMDs from defined benefit or cash balance plans.
The reasoning behind this legislation, which has bipartisan support, is that the current stock market tumble has caused participant account balances to lose a significant portion of their December 31, 2019 value. Requiring a taxable distribution that’s based on that inflated value would result in a disproportionate withdrawal requirement in 2020.
More details about the proposed legislation can be found on Sen. Markey’s website including provisions that would impact rules surrounding inherited IRAs. We’ll keep an eye on this and other retirement-related legislation as it continues to emerge. In the meantime, contact us at IAI if you have questions about how this may impact you or your retirement plan.