IRA owners need to be aware that in 2021 Required Minimum Distributions are on the table again. It was only waived for 2020. This distribution is often referred to as an RMD.
For many years, age 70 ½ marked the beginning date for the RMD, but the SECURE Act in late 2019 changed that. The new beginning age is 72. Anyone born in 1949 or earlier must take an RMD before December 31 this year.
So what accounts are included in this rule? Traditional IRAs, SEP IRAs, SIMPLE IRAs and some employer plans such as 401ks and 403bs may require distributions. If you are still working at age 72 and you do not own 5% or more of the company, you do not have to draw from your 401k or other company plan. Once you retire, and you are 72 or older, you must take an RMD from employer plans.
Rules for Inherited IRAs changed at the end of 2019. If you were taking annual Required Distributions in 2019 and earlier, it was waived in 2020, but now you need to continue RMDs in 2021. If you inherited an IRA from someone who passed away in 2020 or this year, the SECURE Act changed the Inherited IRA rules. So, you should seek professional advice to be sure you handle these correctly. Call us for help with those distributions.
Roth IRA owners do not have to take Required Minimum Distributions during their lifetime.
In planning for 2021, consider the opportunity to make charitable donations directly from your IRAs. This is called a QCD – Qualified Charitable Distribution. The distributions will count towards your RMD and will not be taxable to you. This is a way to not pay taxes on your donations and still file the Standard Deduction. Call us if you have questions and we will be glad to review these rules with you.
Owners of large IRAs have a challenge to plan and be tax efficient with Required Minimum Distributions. Money can be forced out of your IRA that you do not need or want to spend. Planning is important to pay the lowest tax possible.
Written by Connie C. Guelich, CFP, AEP, CLU, ChFC. This represents our views at the time of this writing, and it is subject to change. It is not intended to be personal investment advice. If you would like to discuss your own account, please don’t hesitate to call us.