They're Back! Don't Forget To Take Your Required Minimum Distribution This Year!
They're back! Required minimum distributions (RMDs) are back in 2021 after a hiatus in 2020 thanks to the COVID-inspired CARES Act. And new for 2021, there are some changes you need to know about.
- The RMD age has changed to 72 as a result of the passage of the SECURE Act. If you hit age 70½ before 2020, RMDs kicked in at that point and you need to continue to take your RMDs as you always have. If, however, you reached (or will reach) that age in 2020 or later, you have more time - those withdrawals are now required to start at age 72. Another way to think of it is this: anyone born on July 1, 1949 or later can wait until they turn 72 to take their first RMD.
- There is no longer a waiver for RMDs in 2021. As a result, anyone age 72 or older as of December 31, 2021, must take their RMD by year-end to avoid the 50% penalty―unless this is your first RMD, in which case you have until April 1, 2022.
- Your first RMD can be deferred but no subsequent distributions can be. For your initial RMD only, it is not required to take the distribution until April 1 of the calendar year following the year in which you turn 72. So, for someone reaching age 72 on September 1, 2021, their initial RMD could be deferred until April 1, 2022. However, all subsequent RMDs must be taken by December 31 of the appropriate year. Therefore, if they wait until the April 1st, 2022 deadline for their first distribution, they will need to take their second distribution in 2022 as well.
- You do not have to take the RMD all at one time. You can divide the RMD amount and take it throughout the year, as long as the total RMD amount is fully distributed by December 31.
- Penalties can be steep. In an attempt to enforce the taking of RMDs and the payment of taxes on them, custodians and plan sponsors are required to report the amount of your RMDs to the government. If these are missed, the government will know, and you will not only owe taxes due, but also 50% of the amount not taken.
If you're confused, and this all sounds like Greek to you, don't worry - we're not, and we're fluent in RMD Greek! Give us a call today so we can help you sort out what needs to be done and when in order to maximize your distributions planning and to avoid any penalties.