Planning for retirement is a hugely important task. That’s why we frequently feature articles and advice from Beau Henderson and his team over at Rich Retirement Letter.
Since retirement planning is SO critical, we talked to Beau’s team and decided to cut out the middleman…
Next week, we’ll start sending you Beau’s most current recommendations as soon as they’re published.
I know things are a bit uncertain right now… Hopefully, this expert research helps to set your mind at ease.
Publisher, Unconventional Wealth
Introducing New Rules for IRA Withdrawals
When the SECURE Act went into effect on Jan. 1, it changed many of the rules about contributing to and taking from your retirement account.
The change that’s important for today’s conversation are the new rules surrounding required minimum distributions, or RMDs, from your savings.
If you’re not already familiar, an RMD is the amount of money the government forces you to take from your account each year once you reach a certain age, regardless of whether or not you need the money.
Essentially, it’s Uncle Sam’s way of ensuring that he can finally start collecting taxes from your savings.
The rules for RMDs apply to anyone who owns a traditional IRA or 401(k). The same goes for less common retirement accounts like SEPs and SIMPLE IRAs.
The old rule was that you were required to start taking your RMD by April 1 of the calendar year after you turned age 70½.
If you failed to follow this rule, the IRS would penalize you a hefty fee equal to half the amount you didn’t take out.
But starting Jan. 1 of this year, you don’t have to start taking your distribution until the year after you turn 72.
Not all financial institutions remembered to prepare for this change, though.
A number of administrators sent notices out to account holders alerting them that they need to take their distribution for 2019 before April 1. But thanks to the new RMD rules, many of these account holders can let their savings continue to grow withdrawal free for a few more years.
Now, the rules for these types of accounts are already complicated enough. And it only gets more confusing when even the higher-ups are making mistakes.
So how can you tell when you really need to start taking your distributions?
Unfortunately, the new rules for withdrawing from an IRA don’t apply to everyone…
For starters, if you were already taking RMDs before this year, you’ll still have to continue taking them — even if you’re not yet 72.
It gets a little tricky for those who just recently turned 70½ or will soon. Here are two scenarios to simplify it for you:
If you reached 70½ in 2019: You will still need to take your distribution for the year by April 1 if you haven’t already. You’ll also need to take out your RMD for this year by Dec. 31, 2020.
If you reach 70½ in 2020: You’ll have no RMD this year. You’re covered by the new changes in the SECURE Act and won’t have to touch your savings until the year after your 72nd birthday.
Anyone who received incorrect information about their RMD for the year ahead will get a notice by April 15 at the latest.
But if you find out that you already acted on the wrong information and took a distribution that wasn’t necessary, you might not be out of luck…
The IRS is just now realizing that notices with the wrong information about RMDs went out to so many account holders.
So it’s not yet clear how many people were affected by the error.
But they’re working with the Treasury Department on a solution to aid those who acted on this information.
Of course, I’ll let you know here as soon as there are any updates to report.
But for now, I hope you understand this takeaway…
You can’t always count on institutions to help you plan for or enjoy the retirement of your dreams.
The recent slipup from financial institutions is just one more piece of evidence that proves this.
If you do follow the advice of these so-called “experts,” it could lead you to make unnecessary mistakes.
So you owe it to yourself to boost your retirement IQ so you can avoid these pitfalls.
And that’s exactly what I aim to do here at Rich Retirement Letter.
Here’s to living rich,
P.S. Want more ways to build a richer retirement? Sign up for a free subscription to Beau Henderson’s Rich Retirement Letter here.