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Stop 2020 – Restart 2021
By Staff Reporters
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CITE: https://www.r2library.com/Resource/Title/082610254
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| Are You of RMD Age? |
| A Required Minimum Distribution (RMD) is an amount of money the IRS requires you to withdraw from most retirement accounts, beginning at age 72. Due to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, RMDs were not required in 2020, but RMDs are required in 2021 and each year after. RMDs can be an important part of your retirement income strategy. IRS: https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions |
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Filed under: Accounting, iMBA, Inc., Investing, Retirement and Benefits, Taxation | Tagged: Accounting, CARES Act, IRA, IRS, Required Minimum Distributions, RMD, tax, Taxation, Taxation age |
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RMD Update?
It used to be that when you turned 70-1/2 you had to start withdrawing a required minimum amount from your 401(k) or IRA every year. Then, the age moved up to 72. Under the Secure 2.0 package, it would move up to 73 starting in 2023 and then to 75 a decade later.
Earl
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RMDs 2023
Effective this year, the legislation raises the starting age for RMDs from tax-deferred retirement accounts to 73, from 72 previously. Then, in 2033, the starting age will increase again to 75. There is still an exception for your first RMD, which allows you to delay your distribution until April 1 of the year following your 73rd birthday. However, delaying would mean taking your first and second RMDs in the same tax year, potentially resulting in a large tax hit.
Note: If you turned 72 in 2022, you won’t get a break under SECURE 2.0, based on our current understanding of the law. If you haven’t taken your first RMD yet, you will still have to do so by April 1 of this year. As noted, you will also have to take your 2023 distribution within the calendar year.
Meanwhile, the 50% penalty for failing to take your RMD will fall to 25% this year. In addition, if you correct an RMD mistake in a timely fashion, the penalty is further reduced to 10%.
Finally, the law also does away with RMDs for Roth 401(k)s, but this doesn’t take effect until 2024, so you’ll still need to take an RMD in 2023.
What it could mean
Being able to delay RMDs could allow you to keep more of your tax-deferred savings invested for longer, potentially benefiting some savers. However, investors with significant tax-deferred savings could face a tradeoff.
In short, leaving more of your tax-deferred savings until you’re older could leave you saddled with even larger distributions when your RMDs finally start. That could drive up your overall tax burden and potentially push you into a higher tax bracket.
Keith
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