The Lowdown on Required Minimum Distributions
In late 2019, Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act and changed the age at which you must start taking required minimum distributions (RMDs) from 70.5 to 72. Individuals who turned 70.5 before January 1, 2020, were not affected by this change, but they must still take RMDs before they turn 72.
What does it really mean? What if you have more than one retirement account? Can you direct your RMD to come from one account versus another? What if you are still working and actively contributing to your Thrift Savings Plan (TSP)? The National Active and Retired Federal Employees Association (NARFE) can help you examine your options in more detail.
Your first RMD is due the year you turn 72 (assuming you are not still working). It’s based on the prior year’s ending balance. For example, if you turn 72 in 2021, your RMD is based on your balance as of December 31, 2020. You may delay your first year RMD until April 1 following the year you turn 72. You are not avoiding it, you are delaying it, which means you’ll have to take two RMDs in one year if you do delay. Once you begin taking RMDs, you will continue to take them in each subsequent year.
If you have multiple individual retirement accounts (IRA) — including Traditional IRAs, SIMPLE IRAs, and SEP IRAs) — the IRS says you need to calculate the RMD separately for each IRA, but you may take the RMD from as few as one IRA. Employer plans are a different story. If you have multiple employer-based retirement plans, such as a Thrift Savings Plan (TSP) and 401(k), you must calculate and take a separate RMD from each employer plan you hold. You cannot take an RMD from an IRA to satisfy an employer-based retirement plan RMD, or vice versa.
If you are age 72 and still working for the federal government and still contributing to the TSP, you can delay taking an RMD from the TSP until the year after you separate from service. You only get to defer the RMD while working from the current employer’s plan. You will still have to take an RMD from any other employer plan/IRA you have.
Armed with an understanding of the fundamentals, you’ll be better suited to make preparations for your financial future.
Learn more about the resources NARFE offers to federal employees and retirees to help with your federal benefits and financial planning.
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