Required Minimum Distributions After the SECURE & CARES Acts
RS rules stipulate that certain investors are required to take distributions from IRA and 401(k) plans. The mandatory withdrawals are referred to as Required Minimum Distributions (RMDs).
The SECURE Act of December 2019 and the CARES Act of March 2020 both made changes to rules surrounding RMDs. Understanding the process in light of these rule changes is important.
Failing to take your required minimum distribution by the deadline will result in a tax penalty. Planning ahead and understanding best practices for managing your RMDs can help you avoid headaches as well as hefty fines.
Following are some key things to know about RMDs and some best practices for managing this aspect of your retirement plan.
Who is Required to Take RMDs
The rules for RMDs changed with the passage of the SECURE Act in December of 2019. This means the following individuals are required to take minimum distributions from an IRA or employer sponsored retirement plan like a 401(k).
- Plan account holders who turned 70 ½ prior to December 31, 2019. Those born on or before June 30th, 1949 are subject to the old rules and must take RMDs.
- Plan account holders who turn 72 years old after December 31st, 2019.
- Non-spousal beneficiaries who inherited a retirement plan from an original owner who died on or before December 31st, 2019.
Retirement Plans Subject to RMDs
The rules for required distributions apply to:
- All tax-deferred IRA plans, such as Traditional, SEP, SIMPLE and SARSEP
- Qualified employer defined contribution plans including 401(k), 403(b), 457(b), TSP, and profit-sharing plans
- Roth participant accounts within a 401(k) plan
- A non-spousal Roth IRA inherited from an original owner who died on or before December 31, 2019.
A Roth IRA is not subject to Required Minimum Distributions during the lifetime of the initial account holder.
SECURE Act Changes for Inherited Plan
A non-spousal inherited retirement plan acquired from an original owner who passed on or before December 31, 2019 is subject to the old rules and Required Minimum Distributions must be taken from the account.
A non-spousal inherited retirement plan acquired from an original owner who passed after December 31st, 2019 is subject to new rules implemented by the SECURE Act. Rather than take minimum distributions each year, the entire account must be distributed by the end of the 10th year following the original account holder’s death. Distributions can take place with any amount or frequency during the 10-year period, so long as the full account is ultimately distributed by the end of the period.
CARES Act Changes for the 2020 Tax Year
To protect retirement savers from having to take distributions during the economic downturn created by the COVID-19 pandemic, congress suspended the requirement to take Required Minimum Distributions in the 2020 tax year as part of the CARES Act.
All account holders who may have taken a RMD prior to the passage of the CARES Act in March were provided the opportunity to treat the distribution as a rollover and deposit the funds into a qualified retirement plan no later than August 31st, 2020. Such rollovers were exempted from the one indirect rollover per 12-month rule that normally applies.
Investors who may have taken a RMD and not rolled those funds back into a retirement plan before August 31st, may still have an opportunity to do so. If you were impacted by Coronavirus and therefore eligible to take a Coronavirus Related Distribution (CRD) from a retirement plan, you can treat your earlier RMD as a CRD. This gives you until the end of 2020 to effectively treat the re-deposit of those funds into a retirement plan as a non-taxable rollover. Speak with your licensed CPA or tax advisor to gain full understanding of this strategy before proceeding.
Account Valuation
The calculation for Required Minimum Distributions is based on the account value on December 31st of the year prior to the distribution. For example, the December 31, 2020 value will be used to determine the amount one must distribute in 2021.
In a self-directed IRA or Solo 401(k), it is your responsibility to determine and report on the fair market value of your account each year. While in a conventional stock-market based IRA the account custodian can look up your holdings on a public exchange and calculate the value, that is not possible when your IRA is invested in non-traditional assets such as real estate.
With a checkbook IRA, this means reporting the fair market value of your IRA-owned LLC or trust entity to the custodian as of December 31st. The value is a balance sheet number, representing the total of all holdings within the entity such as real estate, stocks, notes, private placements, cash, etc.
Work with your IRA custodian to understand the specific procedure required to report valuation. The deadline for reporting is usually mid-January so the custodian can have time to include the year-end value as part of their annual reporting to the IRS on form 5498.
Some custodians will want a licensed 3rd party such as a CPA, attorney, or appraiser to sign off on the summary valuation for accounts subject to Required Minimum Distributions.
Other IRA custodians will accept a full listing of individual assets and their values for investments within the checkbook entity in place of a 3rd party certification.
Preparing for end of year valuation can take time. Especially if there is a need for formal valuation documents or appraisals. Be sure you understand the requirements of your IRA custodian and don’t wait until the last moment.
With a Solo 401(k), you are the plan administrator and responsible for maintaining records regarding plan valuation. If your total plan value is less than $250,000, no formal reporting is done, but you will need to have records demonstrating plan holdings and values. If the plan value is over $250,000, then you will be reporting on IRS form 5500-EZ and end-of-year valuation will be part of that process.
In all cases, you will want to have evidence to support the valuation you have provided should the IRS question the matter.
Sourcing RMDs
Each retirement plan you hold that is subject to RMDs will perform its own distinct calculation to determine the amount that must be distributed.
If you have more than one IRA, you can choose which account or accounts you take the distributions from. This grouping of accounts is not available with defined contribution plans like 401(k)s, which must be directly distributed from based on the amount calculated for each account.
Assume you have two IRAs; one that requires a $6,000 RMD and another that requires a $4,000 RMD. You have met your obligation so long as you take a total of $10,000 in some fashion from one or both accounts. This allows you to take your distributions from the account where you have greater liquidity or where selling assets to create liquidity is more favorable.
Taking RMDs from Your Plan
To take a distribution from a Checkbook IRA a two-step process is required. You musty first send cash from your IRA owned entity to the IRA account custodian. This action represents a liquidation of the IRA’s investment into the entity, much like selling shares of a stock or fund in a conventional IRA.
Once funds have been deposited to the IRA, you can then ask the IRA custodian to issue and report on the distribution to you.
Never issue funds from your IRA-owned LLC or trust directly to yourself. This breaks the proper chain of reporting and could have severe tax consequences.
Taking an IRA distribution can take 2-3 weeks depending on what method is used to move funds (check, wire, etc.). December is also the busiest time of the year for IRA custodians, so processing of transactions can tend to take a bit longer. We strongly recommend you begin your distribution process no later than December 1st to ensure completion by the December 31st deadline.
With a Solo 401(k) plan, you are the plan administrator and can simply issue funds from your plan account to yourself to facilitate a distribution. You must issue such distributions on or before December 31st. You then need to report the distribution using IRS form 1099-R and include that amount on your personal tax return.
Roth Conversions
For well-off investors who may not need to take distributions from their retirement plan, performing a Roth IRA conversion can eliminate the RMD requirement on converted funds.
Since the Roth conversion will also have a tax impact, most older account holders will not see a net benefit from such a move in their lifetime. The benefit of this move will be the ability to pass tax-free Roth wealth to your heirs. Be sure to consult with your tax advisor before pursuing this strategy.
As a reminder, a Roth 401(k) is not exempt from RMDs. It may make sense to rollover funds held in a Roth 401(k) to a separate Roth IRA to eliminate the need for distributions.
In Summary
For certain IRA and 401(k) account holders, Required Minimum Distributions are a part of life. It is necessary to plan ahead for these events to ensure you have proper reporting for your plan and take your required distributions by the mandated deadline, as failure on either point can have adverse consequences. Working with your licensed tax advisor to plan your strategies surrounding RMDs is highly recommended.
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Quick answers to common questions
We’ll take you through a simple, step by step process designed to put your investment future into your own hands…immediately. Everything is handled on a turn-key basis. You take 100% control of your Retirement funds legally and without a taxable distribution.
YES! In 1974, Congress passed the Employee Retirement Income Security Act (ERISA) making IRA, 401(k) and other retirement plans possible. Only two types of investments are excluded under ERISA and IRS Codes: Life Insurance Contracts and Collectibles (art, jewelry, etc.). Everything else is fair game. IRS CodeSec. 401 IRC 408(a) (3)
It’s actually pretty simple. Early on, regulators let the securities industry take the lead in educating the public about retirement accounts. Naturally, brokers and banks promoted stocks, bonds, and mutual funds—giving the impression that those were the only allowed investments. That was never true... and still isn’t. You can probably guess why they kept the rest under wraps.
It is possible to use funds from most types of retirement accounts:
- Traditional IRA
- Roth IRA
- SEP IRA
- SIMPLE IRA
- Keogh
- 401(k)
- 403(b)
- Profit Sharing Plans
- Qualified Annuities
- Money Purchase Plans
- and many more.
It must be noted that most employer sponsored plans such as a 401(k) will not allow you to roll youraccount into a new Self-Directed IRA plan while you are still employed. However, some employers will allow you to roll a portion of your funds. The only way to be completely sure whether your funds are eligible for a rollover is by contacting your current 401(k) provider.
A Solo 401(k) requires a sponsoring employer in the format of an owner-only business. If you have a for-profit business activity – whether as your main income or as a side venture – and have no full-time employees other than potentially your spouse, your business may qualify. The business may be a sole-proprietorship, LLC, corporation or other entity type.
A self-directed retirement plan is a type of IRA or 401(k) that gives you greater control over how your retirement funds are invested. Unlike traditional accounts held at banks or brokerage firms that limit you to stocks, bonds, and mutual funds, self-directed plans allow you to invest in a wide range of alternative assets including real estate, private businesses, precious metals, cryptocurrency, and more.
These plans still follow the same IRS rules and maintain the same tax-deferred or tax-free benefits as conventional retirement accounts. The difference is simply in how and where you choose to invest.
No. Moving to a self-directed IRA or Solo 401(k) does not trigger any taxes, as long as your funds are eligible for rollover.
Self-directed retirement plans maintain the same tax-advantaged status as traditional plans offered by banks or brokerage firms. The key difference is flexibility—our plans are designed to give you greater control and allow for a wider range of alternative investments beyond stocks, bonds, and mutual funds.
A prohibited transaction is any action between your retirement plan and a disqualified person that violates IRS rules and can lead to serious tax consequences. Under IRS Code 4975(c)(1), prohibited transactions include:
- Selling or leasing property between your plan and a disqualified person Example: Your IRA cannot purchase a property you already own.
- Lending money or extending credit between the plan and a disqualified person Example: You cannot personally guarantee a loan your IRA uses to buy real estate.
- Providing goods or services between your plan and a disqualified person Example: You can’t use your personal furniture to furnish a rental property owned by your IRA.
- Using plan income or assets for the benefit of a disqualified person Example: Your IRA cannot buy a vacation home that you or your family use.
- Self-dealing by a fiduciary (using plan assets for their own benefit) Example: Your CPA shouldn't loan your IRA money if they’re advising the plan.
- Receiving personal benefit from a deal involving your IRA's assets Example: You can’t pay yourself from profits your IRA earns on a rental.
If a transaction doesn’t clearly fall within the allowed guidelines, the IRS or Department of Labor may review the situation to determine if it qualifies as a prohibited transaction.
Disqualified persons are individuals or entities that are prohibited from engaging in certain transactions with your IRA or 401(k). Doing so could trigger a prohibited transaction, which may result in taxes and penalties.
Here’s who is considered a disqualified person:
- You (the account holder)
- Your spouse
- Your parents, grandparents, and other ancestors
- Your children, grandchildren, and their spouses
- Any advisor or fiduciary to the plan
- Any business or entity owned 50% or more by you or another disqualified person, or where you have decision-making authority
These rules exist to prevent self-dealing and ensure your retirement plan remains in compliance with IRS regulations.
(Reference: IRC 4975)
Understanding and following these rules can be tricky, but it’s very doable. The best way to stay compliant is to work with professionals who specialize in self-directed retirement plans. They can help you navigate IRS guidelines and avoid prohibited transactions.
If an IRA holder is found to have engaged in a prohibited transaction with IRA funds, it will result in a distribution of the IRA. The taxes and penalties are severe and are applicable to all of the IRA’s assets on the first day of the year in which the prohibited transaction occurred.
Yes. While self-directed retirement plans allow for a wide range of investments, there are a few important restrictions.
You cannot invest in collectibles or life insurance contracts, and you must avoid prohibited transactions—activities that benefit you personally rather than the retirement plan. These include things like buying or selling property to yourself or family members, using plan assets for personal gain, or self-dealing in any way.
Violating these rules could cause your entire IRA to lose its tax-advantaged status. To protect your account, it’s essential to work with professionals who understand IRS regulations and can help you stay compliant.
This is a common misconception. In many cases, professionals may simply be unfamiliar with self-directed retirement plans, as they fall outside their usual scope of work. CPAs and tax preparers are trained to file taxes, not necessarily to advise on alternative retirement strategies. Financial advisors and brokers often work for firms that focus on traditional investments like stocks and mutual funds—and may not benefit from or support alternative options like real estate or private lending.
Self-directed retirement investing is legal under IRS rules—but like any specialized area, it requires working with professionals who understand how it works.
The IRS has rules in place to make sure your IRA is used only for the exclusive benefit of the retirement account—not for personal gain or to help family members. These rules can get complicated because there are many ways a conflict of interest can occur, even unintentionally.
For example, if your IRA buys a house and rents it to your mother, you might be reluctant to evict her if she stops paying rent. That emotional connection creates a conflict between what’s best for your IRA and your personal relationships, something the IRS aims to prevent.
These rules help ensure your retirement account stays compliant and protected. (See IRC 408)
Yes. Most tax-deferred retirement accounts—such as Traditional IRAs, old 401(k)s, 403(b)s, and TSPs—can be rolled over into a self-directed IRA or Solo 401(k), depending on your eligibility. Roth IRAs cannot be rolled into these accounts.
You can contribute directly from earned income, subject to annual IRS contribution limits. The method and amount depend on the type of plan you have (e.g., Solo 401(k) vs. IRA).
To take a distribution, you'll request funds through your custodian or plan administrator. Distributions may be taxable depending on your account type and age. Early withdrawals may be subject to penalties.
For 2025, the Solo 401(k) max contribution limit is $81,250 if age 60-63, $77,500 if age 50-59 or 69+, and $70,000 if under 50. Traditional and Roth IRAs have a limit of $7,000 ($8,000 if age 50+). Limits are subject to IRS adjustments.
Yes. IRA contributions are typically due by your personal tax filing deadline (e.g., April 15). Solo 401(k) contributions follow your business tax filing deadline, including extensions.
IRS reporting requirements vary depending on the type of self-directed retirement plan you have. Here’s a quick breakdown of what you need to know
Please note: Our team can help you understand what’s required for your specific account, but we don’t provide tax or legal advice. We always recommend working with a qualified tax professional to ensure full IRS compliance.
Self-Directed IRA (Traditional or Roth)
- Form 5498 – Filed by your custodian each year to report contributions, rollovers, and the fair market value (FMV) of your account.
- Form 1099-R – Issued if you take a distribution or move funds out of your IRA.
- Annual Valuation – You'll need to provide updated FMV for any alternative assets held in the account, such as real estate or private placements.
Solo 401(k)
- Form 5500-EZ – Required if your plan assets exceed $250,000 as of year-end. Must be filed annually by the plan participant.
- Form 1099-R – Required if you take a distribution or roll funds out of the plan.
- Contribution Tracking – Keep records of employee and employer contributions. These are not filed with the IRS but may be needed for tax reporting or audits.
SEP IRA
- Form 5498 – Filed by your custodian to report contributions and FMV.
- Form 1099-R – Filed by your custodian. Issued for any distributions.
- Employer Contributions – Must be reported on your business tax return (and on employee W-2s, if applicable).
Health Savings Account (HSA)
- Form 5498-SA – Filed by your HSA custodian to report contributions.
- Form 1099-SA – Filed by your HAS custodian. Issued for any distributions.
- Form 8889 – Must be included with your personal tax return to report contributions, distributions, and how funds were used.
