The Coronavirus, Aid, Relief and Economic Security (CARES) Act granted Thrift Savings Plan participants to waive 2020 required minimum distributions (RMDs) for everyone who would otherwise have been subject to them. Participants for whom 2020 would have been their first RMD year are also included, despite the fact that distribution would not have been due until April 1, 2021.
As a refresher, this means that if retirement accounts were hypothetically 20 percent lower pre-CARES Act, RMDs would have further reduced the value of accounts. The CARES Act however waives the RMD requirement during 2020.
One of the reasons why RMDs were suspended for 2020 was likely to prevent IRA and qualified retirement plan owners and participants from withdrawing from accounts that would have lost value in which the amounts withdrawn were determined from account values that were dramatically higher three months and before the coronavirus crisis became a harsh reality.
Please note that RMDs are currently not waived for 2021. While this may change, 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 that federal employees consult with a tax advisor in order to navigate the complexities of the updated tax rules surrounding RMDs. Also, if you have any questions regarding your TSP or retirement benefits, please reach out to us at Federal Benefits Service, where trained and licensed professionals are ready and waiting to help.