The CARES Act allowed Thrift Savings Plan participants to waive 2020 required minimum distributions (RMDs). But RMDs have not been waived for 2021.
The Coronavirus, Aid, Relief and Economic Security (CARES) Act allowed Thrift Savings Plan participants to waive 2020 required minimum distributions (RMDs) for all those who would otherwise have been subject to them. This included participants for whom 2020 would have been their first RMD year, even though that distribution would not have been due until April 1, 2021.
But RMDs have not been waived for 2021. The Internal Revenue Service (IRS) last week issued a reminder to taxpayers about the rules for RMDs from retirement accounts including the TSP:
The Setting Every Community Up for Retirement Enhancement (SECURE) Act (which became law prior to the pandemic on Dec. 20, 2019) changed the age when individuals must begin taking withdrawals from their retirement accounts. Someone born on or before June 30, 1949, was required to start getting RMDs for the year they reached the age of 70½. However, under the SECURE Act, if a person’s 70th birthday is July 1, 2019, or later, they do not have to take their first RMD until the year they reach age 72.
The Coronavirus, Aid, Relief and Economic Security (CARES) Act (which become law on March 27, 2020) waived RMDs during 2020 so seniors and retirees, including beneficiaries with inherited accounts, were not required to take money out of IRAs and workplace retirement plans. The waiver included RMDs for individuals who turned age 70½ in 2019 and took their first RMD in 2020.
Individuals who reached age 70 ½ before 2020 and were still employed, but terminated employment in 2020, would normally have a 2020 RMD due by April 1, 2021, from their workplace retirement plan. This RMD is also waived as part of the CARES Act relief. Roth IRAs do not require withdrawals until after the death of the owner.
Individuals who reached 70 ½ in 2019 or earlier, did not have an RMD due for 2020. For 2021, they will have an RMD due by Dec. 31, 2021. Individuals who did not reach age 70 ½ in 2019 will reach age 72 in 2021 will have their first RMD due by April 1, 2022, and their second RMD due by Dec. 31, 2022. To avoid having both amounts included in their income for the same year, the taxpayer can make the first withdrawal by Dec. 31, 2021, instead of waiting until April 1, 2022. After the first year, all RMDs must be made by Dec. 31.
Some Can Delay RMDs
Though the April 1 deadline for taking the first RMD is mandatory for all owners of traditional IRAs, participants in workplace retirement plans who are still working usually can, if their plan allows, wait until April 1 of the year after they retire to start receiving distributions from these plans. Individuals who reached age 70 ½ before 2020 and were still employed, but terminated employment in 2020, would normally have a 2020 RMD due by April 1, 2021 from their workplace retirement plan. This RMD is also waived as part of the CARES Act relief.
It is recommended taxpayers refer to the following official resources for questions about RMDs. Because the tax rules regarding RMDs are complex, they may want to also consult a tax advisor.
Resources from Thrift Savings Plan
Important Tax Information About Your TSP Withdrawal and Required Minimum Distributions (TSP Publication 775, October 2020)
CARES Act RMD Changes
CARES Act Withdrawals and Repayments
Resources from the IRS
IRS FAQs for Retirement Plan and IRA Required Minimum Distributions
IRS Guidance on Waiver of 2020 Required Minimum Distributions