Federal law mandates that you take a required minimum distribution (RMD) from your IRAs by April 1st of 2020 if you turned 70-1/2 in 2019, or by April 1st of the year after you turn 72 (after 2019), thanks to the new SECURE Act passed in December of 2019. Each year after that age you must take your RMD by December 31st. If you fail or forget to take your RMD by the yearly deadline, there is a 50% penalty. Ouch!
There are various ways to take RMDs. They can be taken monthly, annually, or as the market changes, that is a discussion to have with your financial advisor. You can even take more than your RMDs in order to pass on tax savings to your children. Whatever scenario you choose is correct so long as the distribution is taken by December 31st every year. Having a consistent plan for taking your RMDs is key. If you can schedule them in advance, even better.
It is also a good idea to make sure that someone else knows what your plan is. What happens if the plan is in your head and you are in the hospital or incapacitated and cannot take the RMD as planned? Does anyone else know your plan? Are they allowed to direct the distribution on your behalf with a power of attorney? Do you have a well-written power of attorney? All of these questions need to be asked so that you do not get hit with the penalty, but more importantly so that you can receive your money in a timely manner and not cause any domino effects with your finances.
Incapacitation is not an excuse with the Internal Revenue Service and they will not waive the penalty. Speak with your financial advisor, CPA, and estate attorney to make sure that you have a solid plan in place for your incapacitation and your RMDs.
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