Q: I turned 70.5 last year and my wife is going to turn 70.5 this year. I heard that the SECURE Act was signed into law right before the start of 2020. Do we both still have to take our required minimum distributions (RMDs) from our IRAs in 2020?
Just when you thought you understood the magical age of 70.5, you can now add the magical age of 72 to your repertoire! For people born before July 1, 1949, you will still live under the old RMD rule of age 70.5. For everyone else, your first RMD isn’t required until you reach age 72.
So, in your case, while you will still need to take out your RMD in 2020, your wife won’t have to take her first RMD until she turns age 72. Depending on her actual birthday and your tax situation, she might take her first RMD in 2021, 2022, or possibly even 2023.
As a little background, last summer, the House passed the SECURE Act with a nearly unanimous vote of 417-3 and sent it over to the Senate. For over six months, the Senate just sat on the bill. Some began to wonder if it might never become law. At the last minute, the SECURE act was sneakily tacked onto a routine year-end spending bill and signed into law on December 20.
The SECURE Act features a few other things to keep straight. It used to be that people had to stop contributing to their IRA once they reached age 70.5. That silly rule is now gone. And, you can still make charitable donations from your IRA once you reach age 70.5, even if you don’t actually have an RMD to take until age 72.
Q: I recently discovered a major problem with my taxes. My brokerage firm sent me a tax form that completely ignored the charitable donations I made from my IRA. I actually paid taxes on those donations. What are brokerage firms required to report to the IRS when it comes to the donations I make directly from my IRA?
Your question is literally a public service announcement. You are correct, brokerage firms report to the IRS all of the money you’ve taken out of your IRA. And, when I say all, I mean all! Nothing on your Form 1099-R (usually sent in early February) will indicate that you gave some of that money to charity.
As you found out, be sure to tell your tax preparer that you donated some of your IRA distributions directly to qualified charities. The donation you made then should be subtracted from the figures shown on your Form 1099-R.
For interested readers, you might want to review your old tax returns to make sure you got this right. If you find that you’ve made a mistake, remember you still have until April 2020 to amend your 2016, 2017 and 2018 tax returns!
Jason P. Tank, CFA is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com