tax tips — December 13, 2021

Retired? Make Distributions by Dec. 31 to Dodge Penalties

by Susannah McQuitty

Required Minimum Distributions graphic

Last year, retirees 72 and older were not required to take a minimum amount out of their retirement accounts as part of COVID-19 relief—but this year, minimum distributions are back.

If you’re 72 or older, here’s what you need to know about required minimum distributions (RMDs).

I’m in the age range for RMDs, but I still work. Do I still have to make the distributions?

That depends on the type of retirement account you have. IRAs must have RMDs taken out once you pass the 72-year threshold, even if you still work. If you are a 5% owner of the business that sponsors your retirement plan, the same applies—72 and up have to take distributions, working or no.

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.

What kinds of retirement accounts require RMDs?

You’ll need to take distributions by December 31 for:

  • Individual Retirement Arrangements (IRAs)
  • Simplified Employee Pension (SEP) IRAs
  • Savings Incentive Match Plans for Employees (SIMPLE) IRAs
  • Workplace retirement plans, including 401(k), Roth 401(k), 403(b) and 457(b) plans

That leaves Roth IRAs, which don’t require any distributions (at least while the original owner is alive).

Who calculates the Required Minimum Distribution?

Your plan administrator (or trustee for IRAs) must report the amount of the RMD to you—and they must calculate a separate RMD for each IRA you own, if you have more than one.

Do I have to take the RMD from each account, or can I take the sum of all my RMDs from one account?

If you have multiple IRAs, you can actually add up the total RMDs and take them from the IRAs of your choice.

Workplace retirement plans are different, though. RMDs must be taken separately from each plan, and you definitely want to make sure you’re taking accurate amounts. Not withdrawing enough could mean a 50% excise tax on the amount not distributed.

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