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Finra Clarifies RMD Rule Changes for Brokerages and Savers

By Alex Padalka February 12, 2020

Finra has issued an investor alert on changes to required minimum distributions from retirement savings accounts in light of the Secure Act of 2019.

For starters, the industry’s self-regulator directs its website visitors to the IRS’ own FAQs on the issue, adding that for those who have a 401(k) or another type of employer-sponsored plan, the plan sponsor or administrator should calculate the RMD for them. Finra also suggests that readers of its FAQ may want to turn to a tax professional.

But the SRO also offers answers to some typical questions.

Finra points out that the Secure Act mandates that people who turn 70 1/2 years old on or after Jan. 1, 2020, must start taking RMDs from traditional IRAs by April 1 of the year after they turn 72.

The SRO also clarifies that those who turned 70 1/2 in 2019 aren’t eligible for the Secure Act changes, and so must begin withdrawing money by April 1, 2020.

To help savers calculate their RMD, Finra sends them to an online IRS worksheet to determine the distribution period, and says the RMD is the total balance of the IRAs divided by that figure.

Finra also warns that failure to take the RMD, or to take it in full, can result in a 50% excise tax on the amount not distributed. The investor alert also points out that while it’s fine to take out more than the required minimum, anything above that — unless it was taxed before or is from qualified distributions from designated Roth accounts — would be treated as taxable income.


Finra also adds that any extra taken out above the RMD one year would not apply to the RMD in any future years. In addition, the SRO says that it’s “tricky” to determine whether the RMD can be taken out from one account instead of separately from each account, and it lays out the types of accounts that would fall under each requirement.

The SRO also says brokerage firms or other firms acting as custodians or trustees of traditional IRAs must calculate or offer to calculate RMDs for IRA owners and report those figures to the IRS.

The investor alert also states that firms that act as administrators to employer-sponsored retirement plans normally have the same obligations to plan participants.

Finra also includes answers to questions about RMDs for beneficiaries and RMDs in relation to annuities. It also reassures that “[a]ll is not lost” if savers or someone working with them make a mistake with the RMD calculations, noting that the IRS may waive penalties when the mistakes are “due to reasonable error.”

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Tags:  ERISA plans/institutional management , Regulatory/legal issues , Retirement planning

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