It’s my annual Taxes from A to Z series! If you’re wondering how to figure basis for cryptocurrency or whether you can claim home office expenses during COVID, you won’t want to miss a single letter.

R is for Required Minimum Distributions.

Generally, the goal of a retirement account is to defer tax – and let the account grow – for as long as possible. But at some point, you normally have to start taking withdrawals from your IRA, SIMPLE IRA, SEP IRA, or retirement plan account when you reach age 70½ (with a Roth, you don’t have to take withdrawals until after the account owner’s death). Those mandatory withdrawals are called required minimum distributions (RMDs).

The amount of your RMD is figured by taking the account balance as of the end of the immediately preceding calendar year and dividing it by a number of years typically based on your life expectancy (some exceptions apply). You have to take at least that much each year. If you don’t take your RMD, or you don’t take enough, you’ll be subject to an excise tax. You can, however, withdraw more if you want to.

Withdrawals are taxable. That means that they will be included in your taxable income (except for any part that was taxed earlier) or that can be received tax-free (such as qualified distributions from designated Roth accounts). 

For IRAs, the beginning date for your first RMD is April 1 of the year following the calendar year in which you reach age 70½ if you were born before July 1, 1949, or April 1 of the year following the calendar year in which you reach age 72 if you were born after Jun 30, 1949. For 401(k) and 403(b) plans, profit-sharing plans, or other defined contribution plans, the beginning date for your first RMD is April 1 of the year in which you reach age 70½ if you were born before July 1, 1949, or April 1 of the year following the calendar year in which you reach age 72 if you were born after Jun 30, 1949 (or the date that you retire, if later, and if your plan allows). For each year after your required beginning date, you must withdraw your RMD by December 31.

For purposes of calculating your age, you’re considered to have reached age 70½ on the date that is 6 calendar months after your 70th birthday.

There are some important changes to RMDs in 2020. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) waives RMD payments for 2020, including for inherited IRAs. The waiver includes RMDs for individuals who turned age 70 ½ in 2019 and took their first RMD in 2020.

If you have already taken your RMD in 2020, you can choose to return it or roll it over:

  • If you have already received an RMD in 2020, you can repay the distribution to the distributing IRA no later than August 31, 2020, to avoid paying taxes on that distribution; OR
  • Since the RMD rules are suspended, RMDs taken in 2020 are considered eligible for rollover. Therefore, RMDs can be rolled over to another IRA or qualified retirement plan, or returned to the original plan. (There are some restrictions, including a one rollover per 12-month period limit and the exclusion of inherited IRAs on rollovers, so check out IRS Notice 2020-51 (PDF) for more information.)

The RMD suspension does not apply to qualified defined benefit plans (like pension plans).

More information on the CARES Act and retirement plans can be found on the IRS website at Coronavirus-related relief for retirement plans and IRAs questions and answers.

You can find the rest of the series here:

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Kelly Erb is a tax attorney, tax writer and podcaster.

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