Retirement Withdrawals 2021: Making Sense of the Baffling Requirements and IRS Penalties

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This probably isn’t a big problem for most retired Americans, but you can’t let funds in your retirement accounts sit there forever. You have to make required minimum distributions or face stiff penalties from the IRS — and if you haven’t done so in 2021, you had better get busy soon.

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Required minimum distributions, or RMDs, were waived for 2020 because of the COVID-19 pandemic, but they are back this year. That’s not the only thing that’s changed, either. The age requirement has also been raised.

As the IRS notes on its website, most seniors had to start taking withdrawals from their IRA, SIMPLE IRA, SEP IRA, or retirement plan account when they reached age 70½. But because of changes made by the SECURE Act of 2019, if your 70th birthday was July 1, 2019 or later, you don’t have to take withdrawals until you reach age 72. Withdrawals from Roth IRAs aren’t required until after the death of the owner.

To look at it another way, if you reached age 70½ before 2020, then RMDs kicked in at that point, CNBC reported. But if you turned or will turn 70½ in 2020 or later, the mandatory withdrawals aren’t required until you reach age 72.

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Confused yet? If so, you’re not alone.

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“There’s a lot there that can confuse people,” Ed Slott, CPA and founder of Ed Slott and Company, told CNBC. “RMDs have always both annoyed and confused (retirees).”

Much of the “annoy” part probably comes from what happens if you don’t make your required withdrawal. According to the IRS, “You can delay your first RMD until as late as April 1 of the year following the one in which you reach the RMD age. In all subsequent years, you must take the required amount by Dec. 31. If you don’t make those RMDs, you could face a 50% penalty.”

The amount you have to withdraw every year is typically determined by dividing the balance of each qualifying account by a life expectancy factor that’s defined by the IRS. To help you determine your RMD, the IRS provides this worksheet on its website that includes different life expectancy factors (under “distribution period”) per age.

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If you were already taking RMDs before 2020, you can simply resume the withdrawals this year using the current life expectancy tables, your age and your account balance at the end of 2020, Slott told CNBC. “Some may be surprised and find their RMD is bigger,” he added. “Their balance on Dec. 31, 2020, may have been much higher (from stock market gains), so their RMD is higher.”

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Last updated: October 13, 2021

About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte MagazineStreet & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, will be published in 2021 by Atmosphere Press.

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