Changes are Coming to Retired Minimum Distribution

Congress, through the House of Representatives, recently voted unanimously to pass the Secure Act 2.0, which affects financial planning issues for retirement. In particular, and of note, is the proposed change to the required minimum distribution, or RMD‘s, that would move from 72 years of age to 75. Basically, if you have a qualified retirement plan (401K, 403B, and others), today you are required to start making distributions at age 72. Many people make them earlier but the latest that you can hold off is at age 72. 

The charitable connection here is that individuals can make their distribution directly to a nonprofit, not be taxed on the income, but also not receive a charitable deduction. It’s a nice way of reducing tax burden and making a very generous, non-deductible gift to a charity. 

The interesting thing here is the unintended consequences, potentially, of moving the RMD to age 75. When you look at statistics overall of total lifespan, the United States is seen a decrease in average age lived over the the last several years -- individuals, overall, are living less than 75 years of age. And if individuals can’t wait until they’re 75, nonprofits may lose out on three years’ worth of mandatory distributions.

I’ve heard that argument before….many times as the max age for RMD’s has increased over time.   What’s missing is another major fact. If you look at people who live to the age of 65, once reaching that age, statistics indicate that you may live as long as 85 years old. So, the effect to nonprofits may not be that much. Yes, actually, there’s a loss of three years where people do pass away/die. But overall there’s still a wonderful opportunity for nonprofits to benefit from this provision in the IRS code from RMD‘s.

And of course, will have to wait and see what the Senate does first.  And who really knows about that process or timeline.