Donna Cator, CFP®, CDFA®
Vice President - Wealth Advisor
[email protected]941.366.7222 x50623
As we approach the end of 2021, now might be a good time to
take a closer look at a few developments surrounding required
minimum distributions (RMDs) and take note of what has
remained in place.
Once you reach age 72, you are required to take minimum
distributions from your traditional IRAs and most employer-sponsored
retirement plans. (RMDs are not required from
an employer plan if you are still working at the company
sponsoring the plan and you do not own more than 5% of
the company.) You can always take more than the required
amount if you choose.
The portion of an RMD representing earnings and tax-deductible
contributions is taxed as ordinary income, unless
the RMD is a qualified distribution from a Roth account. Failing
to take the full amount of an RMD could result in a penalty tax
of 50% of the difference.
Generally, RMDs must be taken by December 31 each year.
You can delay your first RMD until April 1 following the year in
which you reach RMD age; however, you will then need to take
two RMDs in one year — the first by April 1 and the second by
December 31. (If you reached age 72 in the first half of 2021,
different rules apply; see below.)
You may want to weigh the decision to delay your first RMD
carefully. Taking two distributions in one year might bump you
into a higher income tax bracket for that year.
The Setting Every Community Up for Retirement Enhancement
(SECURE) Act of 2019 raised the minimum RMD age to 72 from
70½ beginning in 2020. That means if you reached age 70½
before 2020, you are currently required to take minimum
distributions.
However, there was a pandemic-related rule change in
2020 that might have affected some retirement savers who
reached age 70½ in 2019. To help individuals manage financial
challenges brought on by the pandemic, RMDs were waived
in 2020, including any postponed from 2019. In other words,
some taxpayers could have benefitted from waiving both their
2019 and 2020 RMDs.
Anyone who took advantage of the 2020 waiver should note
that RMDs have resumed in 2021 and need to be taken by
December 31. The option to delay to April 1, 2022, applies only
to first RMDs for those who have reached or will reach age 72
on or after July 1, 2021.
The IRS publishes tables in Publication 590-B that are used to
help calculate RMDs. To determine the amount of a required
distribution, you would divide your account balance as of
December 31 of the previous year by the appropriate age-related
factor in one of three available tables.
Recognizing that life expectancies have increased, the IRS has
issued new tables designed to help investors stretch their
retirement savings over a longer period of time. These new
tables will take effect for RMDs beginning in 2022. Investors
may be pleased to learn that calculations will typically result
in lower annual RMD amounts and potentially lower income
tax obligations as a result. The old tables still apply to 2021
distributions, even if they're postponed until 2022.
Investors age 70 ½ and older can use distributions from their
traditional IRAs (not employer sponsored plans) to make
donations directly to qualified charities, even though the
new RMD age was increased to 72 as described above. Such
distributions are not taxable. If you are in RMD territory, you
can reduce your adjusted gross income (and taxable income)
dollar-for-dollar by the total of QCDs in any one year. This is
particularly advantageous if you do not itemize deductions.
For more information on RMDs, such as ways to ensure you’re
taking the correct required amount, especially if you have
multiple traditional IRAs at different financial institutions and
QCDs, we encourage you to reach out to your Advisor.
©2021 Broadridge Investor Communication Solutions, Inc. All rights reserved.
This material provided by Donna Cator.
This material is provided for general information purposes only. Canandaigua National Trust Company of Florida is an affiliate of Canandaigua National Bank & Trust. Investments are not FDIC insured, not bank deposits, not obligations of, or guaranteed by, Canandaigua National Bank & Trust or any of its affiliates, including Canandaigua National Trust Company of Florida. Investments are subject to investment risks, including possible loss of principal amount invested. Past performance is not indicative of future investment results. Before making any investment decision, please contact your legal, tax or financial advisor. Investments and services may be offered through affiliate companies.