RMD Alert

In an Employee Plans News Alert, the IRS has reminded taxpayers who are at least 70½ years old and have a retirement account of their responsibility to withdraw minimum amounts annually, noting waivers and other rule changes that have resulted from legislation over the past two years.

Required minimum distributions. The IRS pointed out that required minimum distributions (RMDs) apply to IRAs and other retirement accounts for each year after the account owner has reached age 72. The RMD threshold is 70½ for individuals who reached that age before January 1, 2020.

For taxpayers with retirement plans provided by an employer, RMDs can be delayed if the account holder continues working and is not at least a 5% owner of that employer, according to the IRS release.

However, under IRS rules, taxpayers who meet the age criteria are required to make annual withdrawals from traditional IRAs as well as from simplified employee pension plans (SEPs), savings incentive match plans for employees (SIMPLE) and salary reduction simplified employee pension (SARSEP) plans, even if they continue working.

Note: Taxpayers are not required to take RMDs from ROTH IRAs.

Changes to RMD rules. The News Alert also noted changes to the RMD rules introduced by the Coronavirus Aid, Relief and Economic Security (CARES) Act, which was signed into law in March 2020, and the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which took effect in December 2019.

These changes include an RMD waiver for 2020 for holders of IRAs and workplace retirement plan accounts, including individuals who turned age 70½ in 2019 and had their first and second RMDs due in 2020, or had their first RMD due on April 1, 2021, for the 2020 tax year.

No RMD waiver for 2021. The News Alert emphasized that the waiver of RMDs for 2020 under the CARES Act wasn’t extended to RMDs for 2021. “IRA account holders and participants in retirement plans are subject to RMDs for 2021,” the document stated.

For taxpayers who reached 70½ in 2019, RMDs due in 2020 were waived. But these taxpayers must take a 2021 RMD by December 31, 2021. The amount of the RMD is based on their account balance as of December 31, 2020.

Taxpayers who turned 72 in 2021, but hadn’t reached 70½ in 2019, their 2021 RMD must be taken by April 1, 2022. Again the RMD amount is based on account balances as of December 31, 2020. These taxpayers’ 2022 RMD will be due by December 31, 2022, based on account balances as of December 31, 2021.

Other changes outlined in the release pertain to still-employed holders of retirement plans and delays of RMDs as well as to IRA beneficiaries, who must follow special distribution rules from the IRS. It noted that the SECURE Act changed how and when beneficiaries must take distributions from an account whose owner died after 2019, whereas the CARES Act excuses beneficiaries from taking RMDs for or during 2020.