Year-End Financial To-Do: Last Call for 2021 RMDs

Dec 27, 2021

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

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Another year is almost behind us. If you are like me, you have probably caught yourself saying, “I’ll take care of that after the holidays.” Well, we are down to the last few days of the year and if you have yet to take your 2021 required minimum distribution (RMD), now is the time. Failure to take an RMD can result in an IRS 50% tax penalty.

If you are not sure if RMDs apply to you, here are a few of the most common questions and answers to help you determine if you need to take action.

Am I required to take an RMD if I am still working?
If you’re age 72 or older and own a traditional IRA, SEP IRA or SIMPLE IRA, you will be required to take your RMD whether you are still working or not. If this is your first year for RMDs, you can take your RMD either by December 31 or no later than April 1 of next year. If you don’t take your first RMD this year, you’ll have to take both your first and second year RMDs next year. Make sure you consider the income tax impact of taking both in the same year before you decide to delay. RMDs for all subsequent years must be taken before the end of the year.

RMD rules also apply to savings in employer-provided retirement accounts, like a 401(k) or 403(b), but special rules apply that may allow you to delay the start of your RMDs. If you do not own 5% or more of the company that sponsors your retirement plan, you are able to delay RMDs until you retire or no longer work for the employer.

Do I have to take an RMD if I inherited an IRA?
If you have an IRA that you inherited from anyone other than your spouse, you may have an annual RMD depending on the year the account owner died. If that occurred prior to 2020, annual required minimum distributions are based on your single life expectancy. If the account owner died in 2020 or later, then the 10-year rule generally applies. Under this rule, you do not have to take annual required distributions, but must distribute the inherited IRA in full by the end of the tenth year. Exceptions apply for non-spouse beneficiaries who are chronically ill, disabled, or are the minor children of the account owner.

If you are the surviving spouse, RMDs may also apply depending on the age of the account owner at the time of death and your age as beneficiary. In general, if the account owner was taking RMDs, and you establish an inherited IRA, you will continue to have annual RMDs. If the account owner was younger than RMD age, with an inherited IRA you are able to delay the start of RMDs until the deceased spouse would have been required to begin RMDs. If you roll over the decedent’s IRA into an IRA of your own, then RMDs would be required if you are age 72 or older.

Can I convert my RMD to a Roth IRA?
No. RMDs are not eligible for rollover into another IRA or employer’s retirement plan, nor can they be converted to a Roth IRA in a rollover/conversion. However, if you are age 72 or older and you have already taken your RMD for the year, you can convert any remaining amounts in your traditional IRA to a Roth IRA.

If I give my RMD to charity, do I have to pay taxes on it?
RMDs are generally included in your taxable income. However, if your RMD meets the requirements to be a qualified charitable distribution (QCD), then the distribution is tax free. A QCD is a direct gift out of the 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 401(k) or other employer-sponsored retirement plans, including SEP and SIMPLE IRAs) and you must be age 70½ (6 months past your 70th birthday) at the time you make the gift. Not all charities qualify, so check with your tax advisor or the charity before you take the distribution from the IRA to make sure it qualifies.

The clock is ticking so make sure you talk to your financial advisor soon if you would like more information about RMDs or QCDs.


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.