IRS Gives Banks a Break on RMD Notifications

The SECURE Act, which passed in December 2019, changes how Americans save for retirement in many ways, including by increasing the age Required Minimum Distributions (RMDs) from IRAs and qualified retirement plans must start. Prior to these changes, account holders started to take RMDs the year they turn 70 ½ years old. With the new law, account holders are not required to begin taking these distributions until the year they turn 72 years old.

However, those turning 70 ½ years old in 2020 should beware that their financial institution may not have caught up with the new law yet.

Under IRS regulations, the financial institution that holds your IRA is required to send you a statement by January 31 informing you what your RMDs are for the upcoming year.  However, since the SECURE Act was only passed in late December 2019, many financial institutions have not had enough time to change their systems to account for the SECURE Act’s new RMD requirements. Therefore, if you, or someone you know, is turning 70 ½ this year, they may receive an incorrect statement from the financial institution holding your IRA informing you that RMDs must start this year.

The IRS is aware of this issue and recently issued a notice to financial institutions which will allow them to continue to send incorrect statements so long as the financial institution corrects the error by notifying the IRA holder that no RMDs are due this year by April 15, 2020.

What does this mean for me?

If you are turning 70 ½ this year, you will likely get an RMD statement from your broker or bank showing that you are required to take you RMD this year. If you receive this statement, you may want to delay acting on this information and/or consult with a financial adviser. It is likely you will receive follow-up correspondence from your financial institution by April 15th indicating that you are not subject to RMD requirements. It is recommended that you keep both letters you receive from your financial institution with your other tax documents. 

Do you know someone who might be affected? Share this with them so they can stay informed on the latest news.

Kindur is a New York based financial technology company dedicated to helping Baby Boomers feel prepared moving into retirement. We provide smart, automated advice to personalize your retirement strategy so you can manage your savings with confidence. Learn more at kindur.com

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