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RMDs For 2021: Here's What's Changing

The CARES and SECURES Acts offered financial relief during the COVID pandemic. They also made permanent changes to required minimum distribution (RMD) rules that apply to retirement accounts. 

How are RMDs Calculated?

A RMD is the minimum amount of money one must withdraw from their IRA each calendar year after reaching a specific age.1

The amount is calculated by dividing the following two values from one another:1

  • The total account balance of an IRA in the previous calendar year, divided by
  • A value, determined by the IRS’s “Uniform Lifetime Table.”

The result is the minimum amount that must be withdrawn. Failure to withdraw an RMD can result in a 50% tax penalty.1

Retirement Plans Affected by RMDs

The following retirement plans will be affected by the new RMD requirements:1

  • Traditional IRAs
  • SEP IRAs
  • 401(k) plans
  • 403(b) plans
  • 457(b) plans
  • Profit-sharing plans
  • Other defined contribution plans
As a reminder, Roth IRAs do not follow RMD rules.1

Changes to RMDs in 2021

RMDs have changed in a few ways in 2021. First, following the SECURE Act, the required age of RMDs increased from 70 1/2 to 72.2 This applies to you if your 70th birthday is July 1, 2019 or later. If this applies to you, you have until April 1 of the year following the year you turn 72 to take your first RMD. For each year thereafter, the RMD must be taken by December 31st. For example, if you turn 72 in June of 2021. You may delay your first RMD to 3/31/2022. However, you must take your second RMD by 12/31/2022.

RMDs and Inherited IRAs

When an IRA is inherited, the inheritor becomes a beneficiary and must still take RMDs.2 However, how these RMDs are processed will depend on the date of the original account owner’s passing and the type of beneficiary receiving the account.2 

The type of beneficiary depends on multiple factors, such as relationship to the original account owner and state of residence.3 In general, spouses and other eligible beneficiaries are allowed to take RMDs over their lifetime, while other (“non-spouse”) beneficiaries must withdraw the entire account within 10 years.2 

Do your research or consult with a financial professional to be sure your RMDs are withdrawn and calculated properly, and you avoid tax penalties. 

  1. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds
  2. https://investornews.vanguard/rmds-are-back-for-2021-what-you-need-to-know/
  3. https://www.cpajournal.com/2021/04/21/untangling-the-inherited-ira-rules-part-ii/