Remember: RMDs Waived for 2020, Not 2021
The CARES Act suspended required minimum distributions for 2020, but the exemption hasn’t been extended. Keep relevant 2021 deadlines in mind.
As a reminder, The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), passed last year, suspended required minimum distributions (RMDs) for 2020. The relief provided by this provision was broad and extended to traditional IRAs, SEP IRAs and SIMPLE IRAs, as well as 401(k), 403(b) and governmental 457(b) plans. Both retirement account owners and beneficiaries taking stretch distributions were allowed to bypass RMDs for the calendar year of 2020.
What about 2021?
Since last year’s exemption hasn’t been extended, anyone who is 72 or older in 2021 must make a withdrawal before December 31. If you turn 72 this year, you may delay your first withdrawal until April 1, 2022. It’s important to initiate your distribution by the appropriate deadline, as failure to withdraw your RMD can result in an IRS penalty of 50% of the amount that should have been withdrawn.
While you may have all year to withdraw the money, you can always calculate your 2021 RMD now and plan ahead using the life expectancy tables provided by the IRS. As a refresher, your required withdrawals are based on the balance in your retirement savings account(s) as of Dec. 31, 2020 and the applicable life-expectancy factor based on your current age.
Consider a charitable distribution
Depending on your tax situation, you may want to direct the RMD amount toward a Qualified Charitable Distribution (QCD). Briefly, a QCD, which can be made only by IRA participants who are at least 70½, may be as high as $100,000. The funds must be sent directly to the qualified (IRS-approved) charitable organization. In most cases, you’ll report the QCD as a nontaxable distribution from your IRA on your tax return.
Let your financial advisor know if you wish to take advantage of the QCD provision or if you have other questions about your RMDs.