There were two major changes to required minimum distributions (RMD’s) in 2020. The first change was the age increase from 70½ to 72 as a result of the Setting Every Community Up for Security Enhancement (SECURE) Act. The second change in 2020 was that RMDs were waived by the CARES Act. The temporary one-year waiver applied to:
- 2020 RMDs from traditional IRAs, inherited IRAs, and employer-sponsored plans.
- 2019 RMDs due by April 1, 2020, for individuals who turned 70½ in 2019 and did not take their RMDs before January 1, 2020.
There is no RMD waiver for 2021. As a result, anyone age 72 or older as of December 31, 2021 must take their RMD before the end of the year to avoid the IRS 50% penalty. The only exception is that if this is your first RMD, you have until April 1, 2022 to take an RMD.
What are the RMD rules for inherited IRAs?
If you inherited an IRA, including a Roth IRA, you must take RMDs from the account. You won’t owe taxes on withdrawals from an inherited Roth IRA as long as the original owner held the account for at least 5 years. However, you will owe taxes on withdrawals from an inherited traditional IRA.
The rules for how IRA beneficiaries must take RMDs depend on when the original account owner passed away and the type of beneficiary. By way of example:
- Generally, non-spouse beneficiaries that inherit an IRA from someone that passed away in 2020 or later may be required to withdraw the entire account balance within 10 years.
- Spousal beneficiaries and certain eligible non-spouse beneficiaries may be permitted to take RMDs over their life expectancy.
What if I don’t need the RMD assets?
RMDs are designed to spread out your retirement savings and related taxes over your lifetime. If you do not need your RMD, here are some options:
- Reinvest your distributions in a taxable account to take advantage of continued growth. Strategic Wealth Planning can assist you in transferring RMD dollars from your retirement account to your non-qualified account at SWP.
- Gifting up to $100,000 annually from your retirement account to a qualified charity (donor advised funds do not qualify). In general, qualified charitable distributions (QCDs) aren’t subject to ordinary federal income taxes. As a result, RMD gifts to QCDs are excluded from your taxable income.
Please note that if you make a QCD, the charitable gift should be made first before you take an RMD. As an example, if your RMD is $25,000 in 2021 and you want to make charitable gifts of $10,000, make the charitable gifts first. After the gifts are made, then take the $15,000 as your RMD.
How can I make sure to avoid the 50% penalty tax?
Depending on the amount you’re required to take, the cost of missing an RMD can be pretty significant. To avoid a penalty, take the full amount each year. Otherwise, you’ll owe the IRS 50% of the shortfall.
 Your required minimum distribution is the minimum amount you must withdraw from your retirement account(s) each year. Except for inherited retirement accounts, you have to start taking withdrawals from your IRA, SEP IRA, SIMPLE IRA, or retirement plan accounts when you reach age 72 (70 ½ if you reach 70 ½ before January 1, 2020).