By Michele Loretto, CPA, Manager
The CARES Act provided taxpayers with temporary relief in 2020 from the requirement that retirees and beneficiaries of inherited IRAs withdraw and pay tax on their required minimum distributions (RMDs). The Act also provided relief for retirement age employees that separated from service. However, some relief enjoyed by taxpayers will not continue into 2021. As we approach the end of the year, we would like to remind taxpayers of the RMD requirements that are back. The penalty for not taking a RMD is a 50 percent excise tax on the amount not distributed.
- A retirement plan owner must begin taking RMDs annually starting the year they reach 70 ½ with limited exception. Retirement plans include: traditional IRAs, simplified employee pension plans (SEPs), savings incentive match plans for employees’ individual retirement accounts (SIMPLE IRAs), profit sharing plans such as a 401(k), 403(b) or 457b) and other defined contribution plans.
- Under the SECURE Act, if a taxpayer’s 70th birthday is on July 19, 2019 or later, they are not required to take their first distribution until they are 72. The required distribution date for these IRA owners is April 1st of the year following their 72nd Tip: Those individuals turning 72 in 2021 might consider taking an RMD by December 31st to avoid receiving two RMDs in 2022.
Participants in work-related retirement plans that are still employed may wait until April 1st of the year following their retirement, but the taxpayer must confirm that the plan provides for this allowance.
- Roth IRAs do not require distributions until the death of the owner.
Another form of relief that was provided during the pandemic was that certain distributions could qualify as coronavirus-related distributions. These distributions would not be subject to the 10 percent early withdrawal penalty. Taxes would be includable on your tax return over a three-year period or in the year taken, if elected. In addition, the coronavirus-related distributions could also be repaid within three years. This provision continues for 2021 and 2022.
We recommend that all taxpayers within the applicable age range review their RMD requirements for 2021 and contact us at Tronconi Segarra & Associates.