The Internal Revenue Service today reminded taxpayers of the rules for minimum distributions required (RMD) retirement accounts.
A retirement plan account holder should normally begin taking an RMD each year from the year they turn 70 ½ or 72, depending on their date of birth and possibly the year of retirement. Pension plans requiring RMDs include traditional and simplified individual employee retirement accounts (SEP) and employee savings incentive plan (SIMPLE); 401 (k), 403 (b), 457 (b), profit sharing and other defined contribution plans.
The Establishment of Every Community for the Improvement of Retirement Act (SECURE) has changed the age at which individuals must begin withdrawing withdrawals from their retirement accounts. A person born on or before June 30, 1949 was to begin receiving RMD for the year in which they turned 70 and a half. However, under SECURE law, if a person’s 70th birthday is July 1, 2019 or later, they do not have to take their first RMD until the year they turn 72.
The CARES (Coronavirus, Aid, Relief and Economic Security) law abolished RMD in 2020, so seniors and retirees, including beneficiaries with legacy accounts, were not required to withdraw money IRAs and workplace pension plans. The waiver included RMD for people who turned 70 and a half in 2019 and took their first RMD in 2020.
Persons who reached the age of 70 and a half before 2020 and who were still employed, but who terminated their employment in 2020, would normally have a 2020 RMD due no later than April 1, 2021, from their pension plan. workplace retirement. This RMD is also removed as part of the relief of the CARES law. Roth IRA require withdrawals only after the owner’s death.
People who have reached 70 ½ in 2019 or before, did not have an RMD due for 2020. For 2021, they will have an RMD due before December 31, 2021. People who have not reached 70 ½ years in 2019 will reach 72 years of age in 2021 will have their first RMD due no later than April 1, 2022 and their second RMD no later than December 31, 2022. To avoid both amounts being included in their income for the same year, the taxpayer can make the first withdrawal before December 31. , 2021, instead of waiting until April 1, 2022. After the first year, all RMDs must be completed by December 31.
An IRA trustee must either report the RMD amount to the IRA owner or offer to calculate it for the owner. The calculation of the RMD amount depends on the type of IRA or whether they come from more than one account. Not taking a required distribution, or not withdrawing enough, could mean an excise tax of 50% on the undistributed amount.
Some may delay RMDs
Although the April 1 deadline for taking the first RMD is mandatory for all traditional IRA owners, participants in workplace pension plans who are still working can usually, if their plan allows it, wait until April 1. of the year following retirement to begin receiving distributions. of these plans. People who reached the age of 70 and a half before 2020 and who were still employed, but who terminated their employment in 2020, would normally have a 2020 RMD due before April 1, 2021 from their mid-pension plan. of work. This RMD is also removed as part of the relief of the CARES law.
Employees of public schools and some tax-exempt organizations should check with their employer, plan administrator or provider to find out how to deal with these accumulations.
Coronavirus-related distributions and loans
The CARES Act has made it easier to access savings in IRAs and workplace retirement plans for those affected by the coronavirus. This relief provided favorable tax treatment for certain withdrawals from pension plans and IRAs, including extended loan options.
Division : Certain distributions made from January 1, 2020 to December 30, 2020, from IRAs or workplace pension plans to qualified people can be treated as coronavirus-related distributions. These distributions are not subject to the additional 10% tax on advance distributions (including the additional 25% tax on certain SIMPLE IRA distributions).
Taxes on distributions related to the coronavirus are included in taxable income:
- Over a three-year period, one-third each year, or
- If elected, in the year you take the cast.
Coronavirus-related distributions can be repaid to an IRA or workplace pension plan within three years.
If you had an outstanding loan balance when you left your job, the plan sponsor will usually offset the loan balance with your benefit.
- For offset credits in 2020, you have until your tax return due date (plus any extensions) to repay that amount to another pension plan or IRA.
- If you are a qualified person, you can treat the loan offset as a coronavirus-related distribution and have three years to repay an IRA or include in income tax pro rata over three years.
RMD: An IRA owner or beneficiary who received an RMD in 2020 had the option of returning it to their account or other qualified plan to avoid paying taxes on that distribution. RMDs in 2020 that have not been rolled over or reimbursed may be eligible to be treated as coronavirus-related distributions if the person is a Qualified Person. A 2020 RMD that is otherwise qualified as a coronavirus-related distribution can be reimbursed over a period of 3 years or have the taxes due on the distribution spread over three years.
A withdrawal from a Legacy IRA to a Qualified Person can also be a coronavirus-related distribution. Income from withdrawal can be spread over three years for inclusion in income; however, the withdrawal cannot be refunded to the legacy IRA.
IRS Notice 2020-51 provided that the limitation of one rollover per 12-month period and the restriction on inherited IRA rollovers do not apply to repayments made before August 31, 2020. The suspension of the RMD does not apply to benefit plans defined eligible.
The CARES Act provided for special rules for scheme loans made to qualified persons. Plans could withhold loan repayments for up to one year, although repayments typically resume in January 2021. This effectively gives up to six years (instead of five) to pay off a typical plan loan.
IRS online tools and publications can help
Taxpayers can find easy-to-use answers, forms, instructions, and tools at IRS.gov.
This press release is part of a series called Tax Time Guide, a resource to help taxpayers file an accurate tax return. Further help is available in Publication 17, your federal income tax.