The IRS issued IR-2022-69 on March 25, 2022, in which they reminded owners of retirement accounts that some must take their 2021 required minimum distributions (RMDs) by April 1, 2022. The language in IR-2022-69 referred to reaching age 72 after June 30, 2021, which caused some confusion. The confusion was because the new rule of age 72 for RMDs made the half-year mark no longer relevant. But it is still a crucial cut-off period for those who reached age 72 in 2021. With this cut-off, anyone who reached age 72 after June 30, 2021 but before January 1, 2022, have until April 1, 2022 to take their 2021 RMD. Those who reached age 72 June 30, 2021 and earlier, should have taken their 2021 RMD by December 31, 2021.
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Owners of traditional IRAs, which for this purpose include SEP IRAs and SIMPLE IRAs, must take RMDs from those accounts as of the year in which they reach age 72.
RMDs do not apply to Roth IRA owners.
The year an individual reaches age 72 is their first RMD year. The RMD for the first RMD year must be taken by April 1 of the following year. This April 1 deadline is the individual’s required beginning date (RBD). All other RMDs must be taken by December 31 of the year to which they apply.
This age 72 RMD rule used to be age 70 ½. But a 2019 legislation, The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), increased it to 72, effective for those who reached age 70 ½ after December 31, 2019. Those who reach age 70 ½ as of December 31, 2019 are subject to the age 70 ½ RMD rule.
IRA owners who do not take their RMD by the applicable deadline will owe the IRS an excise tax for excess accumulation in the IRA.
What A Difference A Day Makes For An RBD And A 2021 RMD: June 30, 2021 Vs. July 1, 2021
If an individual reaches age 72 for a year, their first RMD is due for that year and must be taken by April 1 of the following year. But 2021 is an exception to that rule. Under this exception, whether 2021 is the first RMD year for someone who reached age 72 in 2021 depends on whether that person reached age 72 by June 30, 2021, or if they reach age 72 from July 1, 2020 to December 31, 2021.
The following two examples demonstrate.
Example 1: Carl Reached Age 72 By June 30, 2021
Carl was born on June 06/30/1949.
Carl reached age 70 ½ in 2019. Since this is before 2020, Carl is subject to the old age 70 ½ RMD rule.
Carl’s first RMD was due for 2019 and could have been taken as late as April 1, 2020.
Carl must take every other RMD by December 31 of the year for which they are due. Therefore, December 31, 2021 is the distribution deadline for his 2021 RMD.
Table 1: Carl’s RMD Schedule
Example 2: Morgan Reached Age 72 After June 30, 2021 But Before January 1, 2022
Morgan was born on 07/01/1949.
Morgan reached age 70 ½ in 2020. Therefore, Morgan is not subject to the old 70 ½ RMD rule.
Morgan reaches age 72 in 2021.
Morgan’s first RMD is due for 2021 and may be taken as late as April 1, 2022.
Morgan must take every other RMD by December 31 of the year for which they are due.
Table 2: Morgan’s RMD Schedule
Results: While both Carl and Morgan reached age 72 in 2021, Carl had already started RMDs before 2021 because he reached age 70 ½ in 2019 and must take his 2021 RMD by December 31, 2021. Being born a day earlier extended the deadline for Morgan, requiring her to start RMDs two years later than Carl.
If you were born June 30,1949 or earlier, you should have taken your 2021 RMD by December 31, 2021. If you were born July 1, 1949 through to December 31, 1949, you must take an RMD for 2021 by April 1, 2022.
If you were born January 1, 1950, or later, you do not have RMDs due until the year you reach age 72.
If You Have Employer Plan Assets
If you have assets under an employer-sponsored retirement plan- such as a 401(k), pension, or 403(b) plan, you are subject to RMD rules for those assets. However, if the terms of the plan allow, your RMD would be deferred past age 72 until you retire from working with the sponsor (employer) for that retirement plan.
If you have assets under an employer-sponsored retirement plan, talk to your plan administrator to determine whether you must take RMDs from those assets.
Inherited Retirement Accounts
If you inherited IRAs including Roth IRAs and/or inherited assets under an employer-sponsored retirement plan, you might need to take RMDs for those accounts as well. The rules for determining RMD for an inherited retirement account are complex and beyond the scope of this article. Talk to your tax advisor about your RMD requirements for any inherited retirement account.
What If You Miss Your RMD Deadline?
If you miss your RMD deadline, you owe the IRS an excise tax of 50% of your RMD shortfall. For example, if your RMD for 2021 is $10,000 and you withdrew only $5,000 by the deadline, you will owe the IRS an excise tax of $2,500 ($10,000-$5,000) x 50%.
The IRS will waive the excise tax if the deadline is missed due to reasonable error, and you can show that steps are being taken to remedy the shortfall.
Your tax preparer should file IRS Form 5329 to report the RMD shortfall and pay the excise tax or request a waiver.
Get Professional Assistance With Your RMDs
Your IRA custodian or plan administrator is required to provide you with information about your RMD amounts and any applicable deadline. This requirement does not apply to inherited IRAs. Be sure to talk to these parties as well as your tax advisor about your RMD requirements and work with them to help ensure that you meet deadlines and avoid the 50% excess tax that applies to an RMD shortfall.