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By Theresa Cagle Fry, Senior Vice President and Manager, IRAs, Retirement & Education Planning

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Benjamin F. Edwards - Year-End Blog

November is here and with that comes plans for holiday get-togethers with family and friends. It can also create a sense of urgency since there are only a finite number of days remaining in the year to accomplish things you wanted to get done. As we march toward the end of another year, you may want to use this opportunity to do some year-end financial planning.

Between now and December 31, we will be sharing with you our “Financial To-Do” list – reminders of strategies you may want to consider before the year is over. Our first in this series addresses required minimum distributions (RMDs) and qualified charitable distributions (QCDs).

RMDs are Back in 2021

Last year everyone was given an RMD holiday. In 2021, required minimum distributions (RMDs) are back. If you have retirement accounts and were born in 1949 or earlier, or you have inherited an IRA or retirement plan, RMDs generally apply to you. There is no requirement to “make up” or “double up” the amount you take in this year to make up for the temporary suspension of RMDs last year.

For traditional IRAs, SEPs and SIMPLE IRAs, anyone age 72 or older is required to take distributions each year. If you were born between July 1 and December 31, 1949, this is your first RMD year. Your first year RMD can be taken any time in 2021, but no later than April 1, 2022. For anyone born June 30, 1949 or earlier, your RMD deadline is December 31, 2021.

The same general rules apply to your workplace retirement accounts, such as 401(k), 403(b), or 457(b) plans, with a few exceptions. If you are still working for the employer that provides the retirement plan, RMDs don’t usually have to begin at age 72. Instead, they begin in the year you separate from service or retire. However, if you are still employed and own 5% or more of the business or if you are no longer working for the employer offering the retirement plan, you’ll need to make sure you take your RMD.

For inherited IRAs, the rules are bit trickier. If you inherited an IRA or retirement plan from someone who died in 2019 or earlier, you are generally required to take an annual RMD from the inherited retirement account. However, if the original retirement account owner died in 2020 or later, annual RMDs may not apply because of the 10-year rule.

Most non-spouse beneficiaries are subject to the 10-year rule, but there are a few exceptions. With the 10-year rule you can take as much or as little as you want each year as long as by the end of the 10th year the full account balance has been distributed to you. The 10-year rule does not apply to a surviving spouse, or to non-spouse beneficiaries who are disabled, chronically ill, less than ten years younger than the account owner or to minor children of the account owner.

Qualified Charitable Distributions and RMDs

RMDs are typically included in your taxable income. However, if your IRA distribution meets the requirements to be a qualified charitable distribution (QCD), then the distribution is tax free. A QCD is a direct gift out of your IRA to a qualified charity in amounts up to $100,000 a year. It will not increase your taxable income and therefore does not increase your adjusted gross income and can be a tax-efficient strategy even if you do not itemize.

A QCD can only be made from traditional IRAs, not from 401(k) or other employer-sponsored retirement plans, including SEPs and SIMPLE IRAs. You do not have to be age 72 or older to make a QCD or limit the amount of the QCD to your RMD if it is less than $100,000. However, you must be at least age 70 ½ (6 months past your 70th birthday) at the time you make the gift. Check with your tax advisor or the charity before you take the distribution from the IRA to make sure it qualifies.

Additional year-end financial to-dos will be coming to you over the next few weeks. The clock is ticking so make sure you talk to your financial advisor soon if you would like more information about our year-end planning strategies.

 

Benjamin F. Edwards & Co. does not provide legal or tax advice, therefore it is also important to consult with your legal and tax professionals for additional guidance tailored to your specific situation.

November 18, 2021 |