Deadlines for RMDs and Qualified Charitable Distributions

January 11, 2021
Deadlines for RMDs and Qualified Charitable Distributions

Q: I turn 72 in 2021, when do I need to start taking money out of my IRA?

A: Required minimum distributions (RMDs) must be taken each year beginning with the year you turn age 72. The RMD for each year is calculated by dividing the IRA account balance as of Dec. 31 of the prior year by the applicable distribution period or life expectancy.Your first RMD must be taken no later than April 1 of the year after you turn 72. Each year thereafter, it must be taken by Dec. 31. If you do not take your RMD for a given year, the IRS will assess a penalty of 50% of the of the shortfall amount. For example, if the RMD is $10K and only $8K is distributed, a penalty of 50% of $2K will be applied.2

It’s important to remember that if you wait until April 1 to take your first RMD, you’ll actually be taking two distributions in that first year. This could raise your taxable income level, so review your decision with your tax professional. Additionally, you will need to consider your own state’s rules regarding state tax exclusions of retirement income. This could cause you to increase your state income tax bill.

Q: If I don’t need the money, can I leave it in my IRA?

A: No. An RMD must be made by Dec. 31 of each year. Although the IRS requires the distribution, the money does not have to be spent. You can reinvest your distribution into a non-retirement account and allow it to continue growing.

Q: If I have several IRA accounts, do I need to take my RMD from each one?

A: After you turn age 72, your RMD for each year is calculated by dividing all IRA accounts (e.g., SIMPLE IRA, SEP IRA, IRA, 457, 401(k), 403(b), profit-sharing, or other defined contribution plans) balances as of Dec. 31 of the prior year by the applicable distribution period or life expectancy.1 Once the value is known, it can be withdrawn from a single account or multiple accounts as long as the amount satisfies the RMD amount.

Q: Is it possible to gift my RMD to a charity?

A: Yes, a qualified charitable distribution is an effective way to gift to a qualified charity vs. gifting cash directly to a charity. Not only could it satisfy your RMD, but it will also reduce your adjusted gross income (AGI), which many other tax credits and deductions are tied to.

Additionally, it can satisfy all, or part, of your RMD from your IRA. For example, if your 2021 RMD was $15,000, and you made a $7,500 qualified charitable distribution for 2021, you would need to withdraw another $7,500 to satisfy your 2021 RMD.

Note: For charitably-inclined taxpayers, a qualified charitable distribution (QCD) is more beneficial now that the standard deduction for 2021 is $12,550 for single filers, $18,800 for heads of households and $25,100 for married filing jointly.3 A QCD reduces your adjusted gross income, so it will be more advantageous over an itemized deduction.

It’s important to note that QCDs are limited to $100,000/year per individual, and the distribution must be a direct transfer to the eligible charity. Your tax professional will help you determine when to take your RMD and if a QCD is an appropriate strategy for you. 

Q: How do I report a qualified charitable distribution from my IRA?

A: Charitable distributions are reported on Form 1099-R for the calendar year the distribution is made. To report a qualified charitable distribution on your Form 1040 tax return, you generally report the full amount of the charitable distribution on the line for IRA distributions. On the line for the taxable amount, enter zero if the full amount was a qualified charitable distribution. Enter “QCD” next to this line. See the Form 1040 instructions for additional information.

Q: Will I need to take an RMD from my Roth IRA?

A: A RMD is not required during the owner’s lifetime on a Roth IRA; however, Roth 401(k)s do require an RMD. Please note:  Different rules may apply to work related retirement programs (401(k), 403(b), etc.) For these types of plans, please review your RMD options with your tax professional.

Sources:

1“Retirement Topics-Required Minimum Distributions,” irs.gov

2“IRA Withdrawals: Required Minimum Distributions,” schwab.com

3“IRS Provides Tax Inflation Adjustments for Tax Year 2021,” irs.gov

This article is limited to the dissemination of general information pertaining to Mariner Wealth Advisors’ investment advisory services and general economic market conditions. The views expressed are for commentary purposes only and do not take into account any individual personal, financial, or tax considerations. As such, the information contained herein is not intended to be personal legal, investment or tax advice or a solicitation to buy or sell any security or engage in a particular investment strategy. Nothing herein should be relied upon as such, and there is no guarantee that any claims made will come to pass. Any opinions and forecasts contained herein are based on information and sources of information deemed to be reliable, but Mariner Wealth Advisors does not warrant the accuracy of the information that this opinion and forecast is based upon. You should note that the materials are provided “as is” without any express or implied warranties. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision.

Mariner Wealth Advisors (“MWA”), is an SEC registered investment adviser with its principal place of business in the State of Kansas. Registration of an investment adviser does not imply a certain level of skill or training. MWA is in compliance with the current notice filing requirements imposed upon registered investment advisers by those states in which MWA maintains clients. MWA may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by MWA with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about MWA, including fees and services, please contact MWA or refer to the Investment Adviser Public Disclosure website. Please read the disclosure statement carefully before you invest or send money.

Contact Us