Cases of COVID-19 are finally declining as more people are being vaccinated, giving us hope that a return to life as we knew it a year ago is just around the corner. Hope for a return to “normal” where we once again can do all the things we love with those we love.
When it comes to certain of our investments, there is also a return to normal this year. The required minimum distribution from your IRA is just that in 2021…required.
When the stock market took a 30% nosedive in March of 2020, the government put in place the CARES act which allowed for the suspension of required minimum distributions, RMD’s for that year. The market has recovered to historic highs and the CARES act has not been extended for 2021. The need for RMD’s has resumed.
So, the issue becomes, when to take your RMD. If you are using your disbursement as part of your living allowance to pay bills and purchase groceries, then you will want to continue to receive your regular payments.
If the allocation of your disbursement is more flexible, you may want to consider taking it earlier in the year as pro-active protection for your heirs. Should you die before taking your required minimum disbursement, your named beneficiaries may have to act quickly to complete the distribution you didn’t take.
As an example:
If you named your three adult children as your beneficiaries, the custodian of your IRA may be required to open three IRAs and transfer a 1/3 of your account value to each. And then discuss with each of them how a required distribution still must occur, along with the further explanation that the distribution is both taxable and must take place before December 31, 2021. And, since the amount is taxable, each beneficiary will need to decide what amount they want to be withheld for federal and perhaps state tax.
All these details, while coping with a deep personal loss, can seem overwhelming, especially within a short timeframe before the end of the year.
So, just because you don’t need the money at the beginning of the year, is no reason to wait till the end of the year now that you know the possible consequences of that decision for those you care about. Don’t wait…