Required Minimum Distributions

[roconne]

I'm trying to understand when I need to calculate and make my first Required Minimum Distributions from my retirement accounts. I was born August 10, 1949. I have a 401K, an IRA and a Sep IRA. My understanding of the confusing IRS documentation, is that I need to calculate the RMDs based on the amounts in my accounts this year, on 12/31/2020, and I need to make the withdrawals by April 1, 2022, not 2021. Is that correct? Is there any difference in making the RMDs for the 401K, as opposed to the IRAs? Thanks, Bob O'Connell.

[VolvoGirl]

Yes.  For the first year RMD (you turn 72 in Aug 2021) you have until the next April 1 to take it.  That's only the first time.  But then you will still need to take the 2022 RMD by Dec 31, 2022.  So you will have to take 2 RMDs in 2022.

And you have to take each kind of RMD separately.    So you have to figure and take the 401K RMD and a IRA RMD.  You need to take from both.

[fanfare]

You will take two RMDs in 2022, only if you delay to take your 2021 RMD until after Dec 31, 2021.

The grace period is for persons who are really confused, but now you are educated.

[NCperson]

while you have the option of taking that first RMD in 2022, as stated above that will mean two RMD;s that year.

based on your own tax situation, it may be worth taking the 1st RMD by Dec, 2021 as the two RMD;s may push you into a higher tax bracket in 2022 - so it would be less tax to take one RMD each year.... depends on your situation. 

[asgoodasitgets680]

My wife has 3 different IRA accounts. - for tax year 2021 she was 73 - It is our understanding that was not required to make RMD from all accounts - we have only taken RMDs out 2 of the accounts.  In the mail this week received a letter from one of the accounts that made reference to a required RMD by 31 Dec, 2022 - "Since you will attain at least age 72 in 2022, you are required to take your first RMD by April, 2023 and a second RMD in the same tax year."

If for tax year 2021 there is a requirement to take an RMD from each account and the action is taken this year to have an RMD from the account that we didn't how does that get calculated for my tax year 2021?

[fanfare]

You have two questions.

If you are going by the calculated amount (true minimum) that the custodian(s) calculate for you,

then yes you have to take the specified amounts from all those accounts OR from one or more accounts so it adds up to the total of RMDs calculated.

If you have a shortfall in withdrawal,

you have to file 2021 Form 5329 and request a waiver of penalty.

You can do that with TurboTax because you have a 1099-R and can follow up in the interview about the shortfall.

The actual distribution would be taken now and reported on 2022 tax return.

[Opus 17]

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@asgoodasitgets680 wrote:

My wife has 3 different IRA accounts. - for tax year 2021 she was 73 - It is our understanding that was not required to make RMD from all accounts - we have only taken RMDs out 2 of the accounts.  In the mail this week received a letter from one of the accounts that made reference to a required RMD by 31 Dec, 2022 - "Since you will attain at least age 72 in 2022, you are required to take your first RMD by April, 2023 and a second RMD in the same tax year."

If for tax year 2021 there is a requirement to take an RMD from each account and the action is taken this year to have an RMD from the account that we didn't how does that get calculated for my tax year 2021?

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The trustee is reminding you of your obligations, they don't know what you have already done.  The letter is also written as if she turns 72 next year, maybe it's a form letter, or maybe her birthdate is in their records incorrectly.  You might want to check with them.

An RMD is an amount, not a specific transaction.  It is the smallest amount you must withdraw to avoid a penalty.  You can always withdraw more, if you want to spend it, but you should not withdraw less.

The RMD is calculated by grouping like accounts together.  Since your wife has 3 IRA accounts, you can combine the balances to determine the RMD for 2021.  Once you know the amount, you can take it from any combination of the accounts—it does not have to be divided among all three accounts, as long as you withdraw at least the required minimum amount from some combination of your IRAs.

In other words, if the RMD based on her age and combined account balance is $3000, you could satisfy that by withdrawing $1000 from each account, or $3000 from a single account.  (Or more, of course, since that's just the minimum.)

Since your wife turned 72 in 2020, the grace period rule applied to 2020 and 2021, not 2022.  That part of the letter does not apply to you.  She must have taken her RMD by December 31, 2021, but it could come from any account as long as the right amount of money was withdrawn. 

[fanfare]

Sounds like the custodian does not have her correct birthdate on record.

[asgoodasitgets680]

thanks