12.10_blog Retirees to Take Required Minimum Distribution by December 31st
12 / 09 / 21

Retirees to Take Required Minimum Distribution by December 31st

 

The IRS is reminding retirement plan participants and individual account owners that their required minimum distributions must be taken by December 31st

These required minimum distributions (RMDs) are usually the minimum amount that owners of retirement plan accounts must withdraw starting with the year that they reach 72 or the year they retire (if later than 72). If their retirement plans are an IRA or if the owner of the plan is a 5% owner of the business sponsoring the plan, the required minimum distribution must begin when the account holder is age 72, whether or not they continue to work.  If RMDs are not timely withdrawn, they could be subject to penalties. 

Individuals who reached 70 ½ in 2019, (their 70th birthday was on or before June 30, 2019) did not have an RMD due in 2020 but they will have to take one by December 31, 2021. Also, individuals who reach 72 in 2021 (and their 70th birthday was July 1, 2019, or later) will have their first RMD due by April 1, 2022. 

These required distribution rules apply to: 

  • Owners of traditional Individual Retirement Arrangements (IRAs)
  • Owners of traditional Simplified Employee Pension (SEP) IRAs
  • Owners of Savings Incentive Match Plans for Employees (SIMPLE) IRAs
  • Participants in various workplace retirement plans, including 401(k), Roth 401(k), 403(b) and 457(b) plans

Roth IRAs do not require distributions while the owner of the account is alive. 

An IRA trustee must report the amount of the RMD to the IRA owner. The IRA owner must then calculate the RMD separately for each IRA they own. They can choose to withdraw the total amount from one or multiple IRA accounts. Workplace retirement plans require RMDs to be taken separately from each plan. If not done so, a 50% excise tax could be applied to the amount not distributed. 

The RMD is based on the taxpayer’s life expectancy, as well as the balance of their account. Form 5498, IRA Contribution Information is used to report the RMD to the recipient and life expectancy is found from Uniform Lifetime Table III in Publication 590-B, Distributions from IRAs. IRS.gov has online worksheets that individuals can use to find out the RMD. 

2020 RMDs 

If an IRA owner received an RMD in 2020, they had the option of returning it to their account or other qualified plan to avoid paying taxes on that distribution. If the RMD qualified as a COVID-19 related distribution, it can be repaid over a 3-year period or have the taxes due distributed over three years.

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