by Stephen Mehaffey 

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The CARES Act temporarily waived the required minimum distributions (RMDs) for all types of retirement accounts, including inherited IRAs. This waiver, intended to aid taxpayers amid the coronavirus pandemic, expired in December of 2020.

As a result, all account holders who are required to take RMDs must begin or resume doing so in calendar year 2021. The amount the account holder is required to withdraw is based on a formula established by the IRS that includes the balance in the qualifying account as of December 31^st of the preceding year divided by your life expectancy factor. This amount may be surprisingly larger today than it was when withdrawals were paused in 2020 due to robust stock market performance over the past year. There is no requirement to make up the missed 2020 distribution with the resumed 2021 distributions.

RMDs mandated by the IRS must be taken from traditional IRAs, rollover IRAs, SIMPLE IRAs, SEP IRAs, Keoghs, 401(k) and 403(b) plans, but not Roth IRAs, unless the Roth IRA was inherited. In addition, if you reach age 72 and are still employed and are a participant in a qualified employer-based retirement plan such as a 401(k) plan, you can delay making required minimum withdrawals until you retire. This caveat applies only to workers who do not have ownership in the company or who own less than 5% of the company. This benefit is also only applicable to the employer-based account and not to any other accounts from which RMDs are permitted.

Contact your P&N tax advisor to discuss your questions, concerns, and unique situation related to required minimum distributions.