Taxpayers who are subject to taking Required minimum distributions (RMDs) from their retirement plans or IRA accounts, generally must take them by December 31. RMDs that are not withdrawn by this date may be subject to penalties.
RMDs are minimum amounts that retirement plan account owners must withdraw annually starting with the year they reach 72 or, if later, the year they retire. However, if the retirement plan account is an IRA or the account owner is a 5% owner of the business sponsoring the retirement plan, the RMDs must begin once the account holder is age 72, even if they’re still working.
Individuals who reached 70 ½ in 2019, (70th birthday was June 30, 2019 or earlier) did not have an RMD due for 2020, but will have to take one by Dec. 31, 2021.Individuals who reach 72 in 2021 (and their 70th birthday was July 1, 2019 or later) have their first RMD due by April 1, 2022.
The required distribution rules apply to:
- Owners of traditional Individual Retirement Arrangements (IRAs)
- Owners of traditional Simplified Employee Pension (SEP) IRAs
- Owners of Savings Incentive Match Plans for Employees (SIMPLE) IRAs
- Participants in various workplace retirement plans, including 401(k), Roth 401(k), 403(b) and 457(b) plans
Note that Roth IRAs do not require distributions while the original owner is alive.
An IRA trustee, or plan administrator, must report the amount of the RMD to the IRA owner. An IRA owner, or trustee, must calculate the RMD separately for each IRA owned. However, they can choose to withdraw the total amount from one or more of the IRAs. In contrast, RMDs required from workplace retirement plans must be taken separately from each plan. Not taking a required distribution, or not withdrawing enough, could mean a 50% excise tax on the amount not distributed.
It may be worth noting that taxpayers who are 70½ or older can transfer up to $100,000 from a traditional IRA tax-free to qualified charity each year, if they transfer the money directly to the charity. For IRA owners who are 72 or older, this transfer can count towards his or her Required minimum distribution for the year.
