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The vacation from required minimum distributions on retirement plans is over

March 1, 2021, 4:55 PM UTC

Not all aspects of the return to normalcy will necessarily be welcome ones—especially for people who are 72 or over.

The 2020 CARES Act suspended required minimum distributions from all tax-deferred savings and retirement accounts, but the passage into a new year means those savings are over, and seniors will need to make some adjustments.

The amount of the required minimum distribution (RMD) varies based on the age of the account holder and the total value of the 401(k) or IRA, but the idea is the same. Taxpayers are required to withdraw a minimum amount, which will be subject to taxation. (Roth IRAs aren’t taxed, but RMDs must still be taken.)

Under the current regulations, if you turned 70½ in 2019, you will be required to take the first withdrawal by April 1 of this year. If you turn 72 this year, you can take the RMD whenever you’d like, or even delay it until April 1, 2022 (though that risks putting you in a higher tax bracket). The only exception is for people aged 72 who are still working for the company that sponsors the plan.

The suspension of RMDs was meant to offer taxpayer relief amid the coronavirus pandemic but was not renewed this year—and isn’t expected to be again.

For taxpayers who are relying on their retirement plans on a month-to-month basis for living expenses, the expiration of the suspension won’t be an issue. For those who had extra cash on hand, however, it could provide something of a windfall this tax season.

RMDs are set based on the closing balance of an account at the end of the previous tax year, but are often made in the fourth quarter, letting the money earn more interest. Consult a tax professional to see what’s right for you.

Failing to make a full RMD could make you subject to a 50% penalty from the IRS on every dollar not withdrawn, though.