RMDs in 2021

2020 was weird.  You do not need me to tell you, you have heard it more than enough.  Well, Required Minimum Distributions (RMD) were no exception.  If you have contributed to a deferred retirement account, the government eventually wants its taxes.  They get it through the RMD process which requires as you age to take some of your retirement out every year and pay the taxes.  At the start of 2020, if you had an RMD you could calculate it, but after COVID hit they suspended them and said you did not have to take your RMD in 2020.  This has led to some confusion.

The suspension of RMDs is over, you must take your 2021 RMD.

If you are 72 or are turning 72 during 2021, you may be required to take a RMD from pre-tax retirement accounts such as an IRA or 401(k).

The amount you are required to withdraw from your retirement account is determined by two factors – the balance of the account as of December 31, 2020 and an IRS life expectancy factor.

12/31/2020 account balance/IRS factor = Your 2021 RMD

If you are required to take a RMD in 2021, the distribution must be processed by December 31, 2021.

Even though you are required to take a distribution, you have several options for what to use these assets for. They can be used for retirement income, Qualified Charitable Distributions (QCDs), or be transferred to a non-retirement, taxable account to keep the assets invested in the market.

Since RMDs are required for pre-tax retirement accounts, distributions from these accounts usually have tax consequences. These distributions are generally treated as ordinary income. When taking a distribution, you may have the chance to withhold Federal and State taxes if you wish to do so.

Everyone’s situation is unique. It is always best to speak with a financial professional to determine your RMD requirements and what distribution path is best for you.

-Lindsay Birchfield