Retirement Savings Plans,For Individuals,For Plan Sponsors,Custom

Proposed Update to Required Minimum Distribution Rules

December 3, 2019

On Nov. 7, 2019, the Department of Treasury and the Internal Revenue Service proposed regulations to update the life expectancy and distribution period tables used to calculated required minimum distributions (RMDs) from retirement plans and IRAs. The proposed regulations are part of the Strengthening Retirement Security in America executive order issued Aug. 31, 2018. The effective date of the proposed change would apply for years beginning on or after Jan. 1, 2021.

The proposal would modestly reduce the amount of RMD payments required to be taken each year. This is being done based on an increase in overall life expectancy and to allow retirees to retain assets for longer periods of time in their plans and IRAs. As an example, the current distribution period for a 70-year-old under the Uniform Lifetime Table is 27.4 years. This would increase to 29.1 years under the proposed Uniform Lifetime Table. See the proposed update.

With regard to implementing use of the new tables, if an individual attains age 70½ in 2020, the updated RMD mortality tables would not apply to the 2020 payment, even though the RMD would not need to be distributed until the individual's required beginning date on April 1, 2021. Going forward, however, subsequent RMD payments would follow the new tables.

There are also modifications to rules surrounding beneficiary payments as it relates to determining the life expectancy to be used under those circumstances. Proposed regulations would permit beneficiaries a one-time reset based on the new life expectancy tables.

Finally, guidance is being provided so that the updated mortality tables will not adversely impact the exception to the 10% early distribution penalty for taxpayers who, prior to Jan. 1, 2021, have established their RMD through a series of substantially equal periodic payments.

ICMA-RC will monitor and keep plan sponsors and participants apprised of the outcome of the hearings and final regulations in the coming months. 

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