RMD Waiver for 2021, After Starting RMDs in 2020
I have a client who turned 70-1/2 in 2020. Since she was going to have to start taking RMDs anyway…and she had a household building project that she needed money for…she took her 2020 RMD (her first ever RMD) in January of 2020. Obviously, later in the year, the RMD rules were changed and the age requirement was bumped up to 72. So, in 2021, she’ll be 71. I would just like to confirm that she does not have to take a RMD in 2021 (she’ll be 71). It just seems odd that she started taking her RMDs and now the government is going to change their minds and let her skip a years worth of distributions. Thanks.
Permalink Submitted by Alan - IRA critic on Fri, 2020-11-13 17:35
Client’s first RMD distribution year is the year she will reach 72, apparently 2022. This is true because client did not reach 70.5 prior to 2020. The voluntary distribution client took in 2020 was NOT an RMD since client was under 72. Even if client was over 72, the 2020 distribution was not an RMD because all 2020 RMDs were waived.
Permalink Submitted by Guy Crader on Sat, 2020-11-28 17:24
Which is the least costly route? Converting my $250,000 traditional IRA to a Roth IRA before the end of 2020 or Not converting my tradional IRA during my lifetime allowing the person who inherits it to do so over ten years.
Permalink Submitted by Alan - IRA critic on Sat, 2020-11-28 18:19
A non spouse beneficiary cannot convert an inherited TIRA to an inherited Roth. Only a spousal beneficiary can do that after assuming ownership of the IRA or taking an inherited IRA distribution and then converting it. Therefore, you are now comparing the taxes you would pay to convert over your lifetime to the taxes owed by your non spouse beneficiary if you do not convert. Your beneficiary (unless an EDB) will have at most 11 tax years to drain the inherited IRA. If you determined that your marginal rate was lower than that of the beneficiary if beneficiary took approximately equal distributions each year, a conversion would be beneficial to the beneficiary, however you would also want to avoid getting hit with a high conversion rate by converting the entire 250k TIRA in a single year. You would therefore want to spread the conversions over a few years to reduce your conversion taxes to a figure that is less than what your beneficiary would pay if they inherited a TIRA.