By Andy Ives, CFP®, AIF®
True or False? “It is mathematically impossible for an IRA account owner to have his first required minimum distribution (RMD) be due for the year 2020.”
Here’s why this statement is true.
First, we are not talking about inherited IRAs. If the account owner died in 2019, then the first RMD for the beneficiary needs to be taken by December 31, 2020. Inherited IRAs do not fit this statement.
Next, we are not talking about workplace retirement plans – like a 401(k). The reason this statement does not apply to a 401(k) is because of the pesky “still-working” exception. If a plan has the still-working exception feature and an older employee separates from service in calendar year 2020, then the first RMD will also be due for 2020.
The reasons why it is mathematically impossible for an IRA account owner to have his first RMD be due for the year 2020 are as follows.
1. Anyone who turned 70 ½ in 2019 would be required to take their first RMD for 2019. Granted, the first RMD may be delayed until April 1 of the following year (2020), but this RMD would still be considered a 2019 RMD. Those who turned 70 ½ before 2019 are already on to their second-or-more RMD in 2020.
2. Didn’t the SECURE Act change the RMD to age 72? It did, but a person who turns 72 in 2020 – whether his 72nd birthday is January 1 or December 31, 2020 – is already taking RMDs and would fall into category 1 above. Any RMD taken in 2020 would not be the first RMD.
3. Anyone born on or after July 1, 1949 will turn 70 ½ in 2020 or later. These individuals qualify under the SECURE Act and can delay their first RMD until age 72. If you were born exactly on July 1, 1949, you would have turned 70 ½ on January 1, 2020. Your 72nd birthday will be July 1, 2021, and your first RMD will be for calendar year 2021. While that first RMD can be delayed until April 1, 2022, it will still be labeled as your 2021 RMD. Regardless, neither of these years are 2020.
So, the year 2020 is unique. Legislation and the calendar dictate that it is, in fact, mathematically impossible for an IRA account owner to have his very first RMD be due for this year.
Bonus RMD Trivia: Name a year where a 70 ½ year-old IRA account owner’s very first RMD could have been completely skipped?
Answer: 2009. The Worker, Retiree, and Employer Recovery Act of 2008 waived all 2009 RMD requirements for IRAs and workplace plans due to the 2008 stock market crash.