Reconsidering Required Minimum Distributions

Reconsidering Required Minimum Distributions

by Laurie A. Siebert, CPA, CFP, AEP | Jun 01, 2020

The rules for required minimum distributions (RMDs) have been changing, first with the Setting Every Community Up for Retirement Enhancement (SECURE) Act of late 2019 and most recently with the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This turbulence certainly adds difficulty to planning, but RMDs from retirement accounts always have had their own set of convoluted rules. Distributions were typically required once you turned age 70½, but there were exceptions. For example, a retiree participant could wait until the end of the year in which they turn 70½, but they could wait until no later than April 1 of the year following the year that they turn age 70½. If the participant was still working for their employer, they could wait until the year they retire to take the RMD from their employer plan. This, however, would not preclude them from taking RMDs from individual retirement accounts (IRAs) or past employer plans, or taking a distribution if they needed the funds.


With the SECURE Act of December 2019, the RMD age changed from 70½ to 72. The act also eliminated the age restrictions on contributions to IRAs, which had previously been disallowed if working beyond age 70½. These could be substantial benefits: as people work and live longer, the change allows them to save on a tax-deferred basis for more years and defers the tax on a required distribution that may not be needed.

There was an additional major change in the RMD rules for nonspouse beneficiaries. In the past, nonspouse beneficiaries inheriting an IRA could take the RMD over their own life expectancy. To do this, they had to begin distributions by Dec. 31 of the year following the year of death. This could substantially “stretch” out the taxation of an IRA if the inheriting beneficiary was much younger than the deceased participant. People had become so used to the term “stretch IRA” that they believed there was something called a stretch IRA. The SECURE Act removes this feature of inherited IRAs and shortens the period to a maximum of 10 years for a nonspouse beneficiary, with some minor exceptions. This applies for deaths occurring on Jan. 1, 2020, or later. A review of beneficiary designations during one’s lifetime is critical because trust beneficiary designations could produce unwanted tax results or naming a minor child could cause “kiddie tax” issues. These options may have been appropriate planning options under the old regulations, but they may backfire under the SECURE Act. (For more information on the SECURE Act as it pertains to employee benefit plans, read our Employee Benefit Plans column.)


The CARES Act, enacted March 27, 2020, generated additional considerations in RMD planning. For instance, RMDs have been waived for 2020 for those who were already under the old 70½ RMD rules, for those that would be turning 72 this year, and for beneficiary IRA recipients with required 2020 distributions. Participants who delayed taking their 70½ distribution in 2019 and were expected to take both their 2019 and 2020 distribution this year will get a double pass. However, it could make sense to take a distribution regardless of this waiver.

Recent market volatility and the potential for continued disruption because of the COVID-19 pandemic may warn against taking distributions when markets are down (hence the waiver). Consider, however, that current tax rates may be lower now than what they will be in the future. The Tax Cuts and Jobs Act of 2017 is set to expire in 2025, with tax rate increases in 2026. With potential increases on the horizon, there are strategies to consider now.

For one, distributions from IRA accounts may be made in-kind. This is when stock is transferred out of the account and moves directly into another account, such as an individual or joint account. Taking a distribution of stock in-kind while values are depressed and moving it to a nonqualified account offers an opportunity for tax-favored growth while still having access to the funds. The fair market value on the date of transfer becomes the cost basis of the in-kind assets and starts the holding period. Holding the transferred assets for at least one year allows tax-favored capital gains tax rates on the growth and any qualified dividends. In addition, nonqualified accounts get a step-up in basis to the date of death value providing an additional incentive.

If funds are not needed for more than five years, another option would be to convert in-kind securities from a traditional IRA to a Roth. Taking depressed investments with anticipated rebounds in value and converting to a Roth will see that growth and earnings on a tax-free basis. Keep in mind that this would not apply or be allowed for beneficiary IRAs. Because conversions to a Roth have a five-year holding period for the qualified tax-free treatment, make sure these funds are not needed in the short term. This strategy could be used at any age, not just those that are in RMD, and makes more sense if funds are available outside the IRA to pay the income tax on conversion. Investment returns are never guaranteed, however, and counsel with a financial adviser is warranted.

To understand a client’s tax situation, additional consideration should be made regarding their cash needs, risk tolerance, retirement needs, filing status or tax changes, and estate plan objectives. This could require a coordinated effort among the client’s trusted advisers. Decisions are made with the best information available at the time, and that may not anticipate changes warranted by economic challenges or tax reform. Keep abreast of these changes and know how they apply to a client’s unique circumstances.

Laurie A. Siebert, CPA, CFP, AEP, is an investment adviser representative of Valley National Advisors Inc. in Bethlehem, and securities are offered through Valley National Investments Inc., member FINRA, SIPC. She is a member of the Pennsylvania CPA Journal Editorial Board and can be reached at

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