Understanding required minimum distribution (RMD)s and the SECURE Act 2.0 is essential for you to educate, plan and provide valuable guidance to your clients in their retirement and estate planning. By optimizing the timing and amount of withdrawals, clients can minimize the tax impact, potentially enhancing their financial security in retirement.
Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.
Q: Must taxpayers who are over 72 and still working take an RMD from a 401(k) or a SEP IRA?
A: If the plan allows postponement and they aren’t a 5% owner, taxpayers don’t have to start taking RMDs from the 401(k) until they retire. Check with the plan sponsor. SEP IRA account owners who have reached the age to start taking RMDs must take RMDs even if they are still working.
Q: Taxpayers don’t have to take RMDs from qualified plans if the plan allows them to wait until they are retired. What does retired mean in this scenario? What if the taxpayer is still working in some capacity (FT or PT) at another company? Does that count as not retired? Or, since they left the company that holds the qualified plan, do RMDs kick in?
A: If they are retired from employment with the employer maintaining the plan, they are retired and RMDs kick in. So, yes, they are considered retired, even if they still work for another company.
Q: Can taxpayers who have multiple IRAs and SEPs combine them and take the computed RMDs from either one (IRA or SEP), or must they take one from the IRA and a separate one from the SEP?
A: They can aggregate their traditional IRAs with their SEP IRAs. Thus, they can compute the RMD amount for each IRA and then take the entire amount from either IRA.
Q: Can we ignore IRA basis when asking for a QCD since basis won’t come out in the QCD?
A: You can ignore basis, but the QCD cannot exceed the taxable amount in the IRA. For QCDs, the otherwise taxable amount is treated as if it’s distributed first. Basis and earnings aren’t treated as if they’re distributed prorata, which is the usual treatment for regular distributions.
To learn more about mastering RMDs under SECURE 2.0, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial at natptax.com/explore.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.