The changes to the required minimum distribution (RMD) rules made by the SECURE Act of 2019 actually took effect in 2020, but all RMDs were waived for 2020 in response to the COVID-19 pandemic. So without application of the new rules in 2020, many people are questioning the status of their RMD starting date or due date in 2021. Here’s a reminder of what changed and a review of RMD deadlines based on your birth year.
Rules in 2019 and Prior Years
Before the SECURE Act, you were required to begin taking RMDs (annual payments) from your traditional, SEP and SIMPLE IRAs beginning the year you reached age 70½. The deadline for taking your first distribution was April 1 of the following year. Each year after the 70½ year, an RMD had to be taken by December 31. This means two RMDs were required in one year if the first RMD was delayed until sometime between January–April 1 of the year after reaching age 70½.
Age Change, Beginning in 2020
The SECURE Act increased the starting age for RMDs to 72. All other RMD rules remain the same, including the option to wait as long as April 1 in the year following the year you reach the RMD beginning age to take your first RMD. This change was effective beginning in 2020 for those who had not reached age 70½ by December 31, 2019. Those who were age 70½ or older by December 31, 2019, must follow the prior rules and take RMDs each year starting at age 70½.
RMDs Waived for 2020
Regardless of your age, if you had an RMD due for tax year 2020, you didn’t have to take it. This includes first-year RMDs that were being delayed until early 2020 (up to April 1). If you did take your RMD in 2020 despite the waiver, the IRS gave you the option to return it to the IRA by August 31, 2020.
RMDs in 2021
Congress has not enacted an RMD waiver for 2021. RMDs will resume for 2021 as if 2020 were a normal year. The 2020 waiver does not alter the required beginning date for RMDs, and your RMD amount due for 2021 is not affected by whether or not you took an RMD in 2020. If you were born prior to 1949, you will resume taking RMDs each year by December 31 as you had done before 2020. If you were born in 1950 or later, you will begin taking RMDs for the year you reach age 72. The age change made by the SECURE Act is most complex in 2021 for those born in 1949.
|Birthdate||Your RMD Starting Age||Your First RMD Year||2021 RMD Due Date||RMD Calculated Based On|
|Jan. 1 – June 30, 1949||70½||2020 (but no RMD due because of the waiver)||Dec. 31, 2021||Your Dec. 31, 2020, IRA balance and your age in 2021|
|July 1 – Dec. 31, 1949||72||2021||April 1, 2022||Your Dec. 31, 2020, IRA balance and your age in 2021|
Changes Coming in 2022
The amount of your RMD is calculated using your December 31 account balance from the prior year and a life expectancy factor based on your age in the year for which the RMD is due. The factor is found in life expectancy tables published by the IRS. These tables have been updated to account for longer life expectancies. The new tables will be used for calculating RMDs and beneficiary payments beginning in 2022. The new life expectancy factors should result in slightly smaller amounts for required distributions. For example, the distribution period for a 72-year-old participant under the existing Uniform Lifetime Table is 25.6 years. In the new table, this distribution period increases to 27.4 years. This means the RMD for a 72-year-old participant with a $300,000 account balance would decrease from $11,719 to $10,949 – a reduction of almost 7%.
Contact STRATA Trust for Assistance
If you have any questions about your RMD from your STRATA Trust IRA, please contact us at 866-642-7989 or Service@StrataTrust.com.