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Required Minimum Distributions due again in 2021

By David Goode

The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, waived the RMD (Required Minimum Distribution) requirement for everyone in 2020. The newest COVID relief bill did not extend the waiver and RMDs will resume in 2021. The age for starting to take the required withdrawals was raised to 72 in 2019. Even though you have all year to withdraw the funds, you need to plan now for how you want to do it.

Rob Williams, Vice President of Financial Planning and Retirement Income at Charles Schwab said, “The amount you have to take is based on the Dec. 31, 2020 balance in your traditional IRAs, 401ks, and any other retirement accounts.”

Williams also said that “the penalty for not withdrawing the required amount by the end of the year is 50% of the amount you should have withdrawn but didn’t.”

If you turn 72 in 2021, you can wait until April 1, 2022 to take your first withdrawal.

According to Adria Meehan Siewert, Senior Vice President of the Wealth Enhancement Group located in Itasca, “if you have a self-directed IRA you will need to refer to the Uniform Lifetime Table in IRS Publication 590-B to determine the required withdrawal amount for the year.”

Siewert added, “The IRS has a life-expectancy factor based on your age and that factor is included in the withdrawal calculation.”

To calculate the total RMD amount due from traditional IRAs, you calculate the amount required for each account and then add it all together. The total amount can come from any combination of accounts. Roth IRAs, on the other hand, do not have required distributions.

For 401ks, on the other hand, you must calculate the RMD and take the money separately from each account. If you’re still working at age 72 you can usually delay taking RMDs from your current employer’s 401k.

Required Minimum Distributions are taxable amounts. Usually you can have money withheld from RMD payments for taxes. Ten percent is the default amount, but you can have more or less withheld.

Planning is a major part of all things financial. Planning is a necessity for the when and how to complete the RMDs for 2020.





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