Photo of a notebook with the required minimum distribution written on a cover
Required Minimum Distributions Are Back
October 1, 2021 | posted in: Accountants | by Frye Retirement
Here’s What You Need To Know To Guide Your Clients!
Required minimum distributions (RMDs) are back in 2021 after a brief break in 2020 initiated by the CARES Act. Between the suspension of RMDs in 2020 and the rule changes in the SECURE Act, which passed in 2019, we want to remind you of some key points to keep in mind for your clients’ RMDs:
- The RMD age has changed to 72 as a result of the passage of the SECURE Act. If your client had hit age 70½ before 2020, RMDs kicked in at that point and they need to continue to take their RMDs. If they reached (or will reach) that age in 2020 or later, they will get more time – those withdrawals are now required to start at age 72. Another way to think of it: anyone born on July 1, 1949 or later can wait until they turn 72.
- There is no longer a waiver for RMDs in 2021. As a result, anyone age 72 or older as of December 31, 2021, must take their RMD by year-end to avoid the 50% penalty―unless this is their first RMD, in which case they have until April 1, 2022. (See below.)
- Your client’s first RMD can be deferred but no subsequent distributions can be. For your client’s initial RMD only, it is not required to take the distribution until April 1 of the calendar year following the year in which they turn 72. For someone reaching age 72 on September 1, 2021, their initial RMD could be deferred until April 1, 2022. However, all subsequent RMDs must be taken by December 31 of the appropriate year. Therefore, if they wait until the April 1st, 2022 deadline for their first distribution, they will need to take their second distribution in 2022 as well.
- Your client does not have to take the RMD all at one time. Your client can divide their RMD amount and take it throughout the year, as long as the total RMD amount is fully distributed by December 31.
- Penalties can be steep. In an attempt to enforce the taking of RMDs and the payment of taxes on them, custodians and plan sponsors are required to report the amount of your clients’ RMDs to the government. If these are missed, your client will not only owe taxes due, but also 50% of the amount not taken.
Let us help you navigate the new rules to provide your clients with the best guidance possible to maximize savings and avoid penalties; contact Frye Retirement Planning now. For a reference chart comparing IRAs vs. Defined Contribution plans, click here.
