One of the many changes that occurred during 2020 was a modification to required minimum distributions, or RMDs. The CARES Act suspended RMDs in 2020, giving retirees more flexibility in handling their retirement accounts. However, in 2021, those 72 and older should be ready to start taking RMDs. Here is what you need to know.
What are RMDs?
RMDs refer to the minimum amount of money people 72 and older must withdraw from their retirement accounts. The IRS calculates the required amount using life expectancy models. In fact, the IRS has created several different life expectancy charts for this purpose. Retirees should use the chart that aligns most closely with their circumstances to determine the appropriate RMD amount. Failing to withdraw that minimum amount from your retirement accounts can lead to large penalties of up to 50% of the amount that you should have withdrawn. Note, however, that RMDs are not required for Roth IRAs when the account holder is still alive.
Can I take more than the RMD?
Yes, you can certainly take more than the required minimum distribution amount from your accounts. You can also opt to spread the RMD withdrawals across multiple retirement accounts, as long as the total you withdraw is at least the minimum required amount. Of course, there are potential tax implications with all withdrawals, so be sure to consider your strategy carefully.
What should I do to make the most of my retirement savings?
RMDs exist, in part, to facilitate regular tax payments. As such, they aren’t intended to be a reliable guide to managing your retirement income. To make sure you’re maximizing your income while minimizing your tax burden, work with an accountant who knows your personal financial situation and can give you customized advice.
Take control of your finances and get help navigating the complex tax impacts of retirement from The Royce CPA Firm. For more information, call our CPA office in Tucson at (520) 321-4626.