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What You Need to Know About RMDs

Required Minimum Distributions (RMDs) are minimum withdrawals that the IRS requires from most retirement plan accounts every year once the account owner reaches a certain age. Since you are receiving a Colorado PERA benefit, your PERA Defined Benefit (DB) Plan is already paying out the required amount to satisfy an RMD for the DB Plan. But, you may need to take action to satisfy an RMD if you participate in the PERA Defined Contribution (DC) Plan or voluntary retirement plans like:

  • 403(b) plans
  • 401(k) and 457(b) plans, like the PERAPlus Plans
  • Traditional IRAs
  • SEPs and SARSEPs
  • SIMPLE IRAs

With the exception of your first RMD, after you reach the IRS-required age, you must take your RMD each year by December 31. Because of a 2019 change to the tax laws, your first RMD date depends on when you were born.

  •  If you turned age 70½ on or before December 31, 2019, then your first RMD was required by April 1 of the year after the year you turned 70½.
  • If you were not yet age 70½ as of December 31, 2019, then your first RMD will be required by April 1 of the year after the year you reach age 72.

The CARES Act (the Coronavirus Aid, Relief, and Economic Security Act enacted on March 27, 2020) waived RMDs in 2020, for defined contribution plans (like the PERAPlus 401(k)/457 and DC Plans, as well as 403(b) plans) but, the waiver only lasted one year and RMDs are due again for 2021.

If you do not (1) take an RMD (RMDs in 2020 excluded), (2) don’t withdraw the proper amount, or (3) don’t take your distribution by the deadline, the amount not withdrawn is subject to a 50% penalty from the IRS. Keep in mind that you can always withdraw more than your required amount. Any amount you withdraw is considered taxable income unless it was taxed before you contributed the money to your plan or if it can be withdrawn tax-free (like qualified withdrawals from Roth accounts).

More information on RMDs, including worksheets to help you calculate your RMD amount, can be found on www.irs.gov or by speaking to a trusted financial adviser.