Required Minimum Distributions (RMDs) Are Back For 2021

September 28, 2021

We want to remind you that Required Minimum Distributions (RMDs) are required in 2021. A retirement plan* account owner must normally begin taking an RMD annually starting the year he or she reaches 70 ½ or 72, depending on their birthdate and maybe the year they retire. The CARES Act waived RMDs during 2020 so seniors and retirees, including beneficiaries with inherited accounts, were not required to take money out of IRAs and workplace retirement plans. Make sure you know if your 2021 estimated tax payments will cover the taxes due on your 2021 RMD, or if you will owe tax in April 2022 for this income.

The SECURE Act changed the age when individuals must begin taking withdrawals from their retirement accounts. Someone born on or before June 30, 1949, was required to start getting RMDs for the year they reached the age of 70½. However, under the SECURE Act, if a person's 70th birthday is July 1, 2019, or later, they do not have to take their first RMD until the year they reach age 72.

* Retirement plans requiring RMDs include traditional, Simplified Employee Pension Plan (SEP) and Savings Incentive Match Plan for Employees (SIMPLE) Individual Retirement Accounts; 401(k), 403(b), 457(b), profit sharing and other defined contribution plans.

Is 2021 the first year you are required to take an RMD?

Individuals who did not reach age 70 ½ in 2019 and will reach age 72 in 2021 will have their first RMD due by April 1, 2022, and their second RMD due by Dec. 31, 2022. To avoid having both amounts included in income for the same year, the individual can make the first withdrawal by Dec. 31, 2021, instead of waiting until April 1, 2022. After the first year, all RMDs must be made by Dec. 31.

If you do not know how much your RMD is for 2021, please contact your IRA account Trustee. Not taking a required distribution, or not withdrawing enough, could mean a 50% excise tax on the amount not distributed.

Qualified Charitable Distributions (QCDs)

A Qualified Charitable Distribution (QCD) is a tax benefit that allows some owners of individual retirement accounts (IRA’s) to make charitable contributions by transferring IRA funds directly to qualifying charities. The IRA funds that go to the charity are excluded from income, which provides a better tax benefit than an itemized deduction because the QCD reduces adjusted gross income, or AGI.

If you are planning on making charitable contributions and are required to take an RMD, a QCD is the way to go. However, QCD’s have their limits. They are only available to IRA owners and IRA beneficiaries who are 70-1/2 or older, and they are limited to $100,000 per person per year (not per IRA account).