The SECURE Act changed the age when individuals must begin taking withdrawals from their retirement accounts. Now, 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.

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. The waiver included RMDs for individuals who turned age 70½ in 2019 and took their first RMD in 2020.

Individuals who reached age 70 ½ before 2020 and were still employed, but terminated employment in 2020, would normally have a 2020 RMD due by April 1, 2021, from their workplace retirement plan. This RMD is also waived as part of the CARES Act relief. Roth IRAs do not require withdrawals until after the death of the owner.

Following the extension of the filing and payment deadline for individuals to May 17, 2021, the IRS announced other tax deadline extensions to the same date. People now automatically have until May 17, 2021, to make 2020 contributions to their IRAs and health savings accounts. The deadline for reporting and paying the 10% additional tax on amounts included in gross income from 2020 distributions from IRAs or workplace-based retirement plans is now May 17, 2021. Lastly, the due date for Form 5498 series returns related to these accounts is now June 30, 2021,

2021 RMDs

For 2021, individuals who reached 70 ½ in 2019 or earlier will have an RMD due by December 31, 2021. 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 December 31, 2022. To avoid having both amounts included in their income for the same year, the taxpayer can make the first withdrawal by December 31, 2021, instead of waiting until April 1, 2022. After the first year, all RMDs must be made by December 31.

An IRA trustee must either report the amount of the RMD to the IRA owner or offer to calculate it for the owner. Calculating the amount of the RMD depends on the type of IRA or if they are from multiple accounts. Not taking a required distribution, or not withdrawing enough, could mean a 50% excise tax on the amount not distributed.

Some can delay RMDs

Though the April 1 deadline for taking the first RMD is mandatory for all owners of traditional IRAs, participants in workplace retirement plans who are still working usually can, if their plan allows, wait until April 1 of the year after they retire to start receiving distributions from these plans. Individuals who reached age 70 ½ before 2020 and were still employed, but terminated employment in 2020, would normally have a 2020 RMD due by April 1, 2021 from their workplace retirement plan. This RMD is also waived as part of the CARES Act relief.

Employees of public schools and certain tax-exempt organizations should check with their employer, plan administrator or provider to see how to treat these accruals.

An IRA owner or beneficiary who received an RMD in 2020 had the option of returning it to their account or other qualified plan to avoid paying taxes on that distribution. RMDs in 2020 that were not rolled over or repaid may be eligible to be treated as coronavirus-related distributions if the individual is a qualified individual. A 2020 RMD that otherwise qualifies as a coronavirus-related distribution may be repaid over a 3-year period or have the taxes due on the distribution spread over three years.

A withdrawal from an inherited IRA to a qualified individual may also be a coronavirus-related distribution. Income from the withdrawal may be spread over three years for income inclusion; however, the withdrawal may not be repaid to the inherited IRA.

The IRS advised that the one rollover per 12-month period limitation and the restriction on rollovers to inherited IRAs did not apply to repayments made by August 31, 2020. The RMD suspension did not apply to qualified defined benefit plans.

The CARES Act included special rules for plan loans made to qualified individuals. Plans could suspend loan repayments for up to one year, although, typically, repayments resumed in January 2021. This effectively gives up to six years (instead of five) to repay a typical plan loan.

Contact Us: Relief is welcome but brings uncertainty for many clients. We are a resource for you. If you have questions, we’ll get the answers, and educate you as to your best options.

A key component of our services is our 360° “whole”-istic approach to your financial health. That means a commitment to providing the right products for your needs, explaining the potential risks and returns, and keeping fees at a minimum. We invest the time to work with you on defining your retirement goals, and discuss the advantages and risks associated with different financial products and services. We want you to make informed decisions. Feel free to contact us directly at 561-209-1120.

TFG Financial Advisors, LLC is a registered investment advisor.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results.  Investments involve risk and are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.