Mary Beth’s Corner

The Year End Glee of RMDs

Administration, IRS Notices, Participant Services
December 20, 2022

With 2023 rapidly approaching, it’s important to keep up with year-end IRS requirements and make the necessary communications around RMD rules for employees. As part of your Plan’s annual compliance, we review your active and terminated participant information to determine whether or not any participants may be subject to a Required Minimum Distribution “RMD” from the Plan.

Given the new RMD rules, upon reaching age 72, you may be required to take a minimum distribution against your retirement plan. Read along as we get into when an RMD is required, RMD exclusions, how they’re calculated and what happens when you don’t take the correct amount.

When Is A RMD Required For Me?

As the named Plan Administrator of a retirement plan, the IRS requires that you determine who is subject to a RMD and timely distribute the funds.

The passing of the SECURE Act of 2019, brought major changes to the RMD rules. If you reached the age of 70½ in 2019 the prior rule applies, and you should have taken your first RMD by April 1, 2020. If you reached age 70 ½ in 2020 or later you should take your first RMD by April 1 of the year after you reach 72.

It’s Your Money, But What If You Don't Need It Now?

Like every ‘end of the year’ event exclusions apply – same goes for retirement plans.

Relating to a retirement plan, if an employee has reached the age of 72 after December 31, 2021, is not a 5% or greater shareholder (by family attribution) and is still employed then you are not required to take an RMD.

What’s The RMD Amount?

Required Minimum Distributions (RMDs) are IRS-mandated amounts that are individually calculated by dividing prior year-end account balances by the IRS Uniform Lifetime Table. If you’re married and have your spouse listed as the sole beneficiary being more than 10 years younger than you, your RMD is calculated using this IRS Joint Life Expectancy Worksheet.

When taking an RMD it’s important to make sure you are taking out the correct amount. If you miss an RMD or don’t take enough out of your retirement account, there is a 50% excise tax added to your distribution.

Possible Legislation Changes

Lawmakers are debating certain changes to the SECURE and EARN Acts, which would adjust the RMD regulations moving forward. These adjustments include: an increase in RMD age from 72 to 75, decreasing the tax penalties from 50% to roughly 25%, adding Roth IRAs as an RMD source, changes in annuities and regulations for surviving spouses.

Stay on the lookout for updates regarding these legislation changes as they would make substantial changes to how Americans save for and are taxed in retirement.