Age 72 RMDs and Custodians
I have two clients whose birthdays are 10/7/49 and 12/1/49, respectively. As I read the new law, they must take their first RMD by April 1st of the year in which they turn 72 (which would be April 1, 2022). They will both be 72 in calendar year 2021. The custodian is not showing that they have to take an RMD this year (2021), though they will attain age 72. Thoughts on why the custodian would not calculate this? My inclination is to take monies out this year to satisfy their age 72 RMD as not to “double dip” in year 2022 to satisfy two RMDs.
Permalink Submitted by David Mertz on Tue, 2021-01-05 15:49
You stated the RBD date correctly, April 1, 2022, but you stated its definition incorrectly. The RBD is April 1 of the year *following* the year they reach age 72. Their first RMDs are required to be completed by April 1 2022 while their second RMDs will need to be completed by December 31, 2022. Each has the option of taking their 2021 RMD in 2021, 2022 or split between the two years as long as each one’s the entire 2021 RMD is satisfied by April 1, 2022.
The custodian might be indicating that no distribution is required to be made *in* 2021 because the entire 2021 RMD can be delayed until April 1, 2022 even though it is *for* 2021. If asked to calculate the 2021 RMD, the custodian should do so. Assuming that these are RMDs from IRAs, on the 2020 Form 5498 that these individuals receive in 2021, the custodian should have box 11 “Check if RMD for 2021” marked. No matter when the 2021 RMD is taken, it’s calculated based on the 2020 year-end balance shown on the Form 5498.
Permalink Submitted by Jordan Rummel on Tue, 2021-01-05 15:58
Thank you! Yes, it should have read “following” the year in which they attain age 72. Much appreciated. -J
Permalink Submitted by Alan - IRA critic on Tue, 2021-01-05 15:57
The custodian should show the RMD FOR 2021, even though it can be deferred to 4/1/2022. It’s possible that they have not yet calculated the RMD, since they must use the actual 12/31/2020 valuation, and this is only the second business day of 2021.
For most people, not deferring will produce the lower 2 year tax bill. However, for some the lowest tax bill over the 2 years will involve deferring part or even all the first year RMD to the second. Most often a partial deferral is beneficial when it will reduce the amount of SS income included in the first year and not increase it in the second. This takes some number crunching late in 2021 to have the best indication of both the 2021 and 2022 taxable incomes and still take out whatever amount is optimal in 2021. Of course, this is a one time decision with this flexibility, but very few people do the math to optimize it.