As we all get back into the swing of things, we would like to remind you of one thing we can’t ease back into and that is your 2021 required minimum distribution (RMD). Last year offered a unique opportunity to refrain from taking this required withdrawal. For many reasons, individuals who usually had a requirement may have stopped automatic distribution plans to avoid removing funds from tax deferred accounts, or taking taxable distributions.
As part of our process, Atlas advisors review and assist clients with the management of RMDs. We do this to make a potentially cumbersome administrative activity easy for our clients, but also for providing guidance on the financial planning aspect and tax implications associated with the distributions.
At the start of 2020, the SECURE Act was implemented. This new legislation increased the age to 72 for individuals who had not yet begun taking their required minimum distributions. Individuals who had already started taking distributions under the old rules are still required to take distributions. For reference, we highlighted key provisions of the SECURE and the CARES Acts in last year’s tax webinar.
From our tax department we offer up answers to a few common questions we have received:
- Do my RMDs go up every year in terms of the amount I have to take out?
- Short answer, not necessarily. The total value of your qualifying retirement accounts at year-end, the type of account, marital status, your age, and life expectancy (based on a pre-determined table) may all play a factor in how much you will need to take and it can vary from year-to-year.
- How much (roughly) do I need to take out when I begin taking out my RMDs the year I turn 72?
- This is unique to the individual but the amount calculated or required is the MINIMUM. So if the need arose, at some point, you are able to take more, depending on your personal circumstance and tax implications as this money is generally counted as income and, therefore, a taxable event.
- Does it make sense to delay my first RMD until April 1st the following year?
- Depending on your unique circumstance, it can and has been done; again tax implications are dependent on the size of your required withdrawal. The amount taken as income would be taxable in 2022 instead of 2021. You should talk with your advisor to determine which tax year would be more favorable from a tax perspective.
For questions regarding your unique financial circumstances please reach out to your Atlas Wealth Management Advisor.