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. 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 is required by April 1 of the year after the year you reach age 72.
Due to the CARES Act (the Coronavirus Aid, Relief, and Economic Security Act enacted on March 27, 2020), your RMDs for defined contribution plans (like the PERA DC Plan, PERAPlus 401(k), and PERAPlus 457 Plan, as well as 403(b) plans), were waived for 2020. However, the waiver only lasted one year and RMDs were due again for 2021 and are due for following years.
If you do not take an RMD, don’t withdraw enough money, or don’t take your distribution by the deadline, the RMD amount not withdrawn is subject to a 50% penalty from the IRS.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withdraw is considered taxable income unless it was taxed before you contributed the money to your plan or it can be withdrawn tax-free (like qualified withdrawals from Roth accounts).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 irs.gov or by speaking to a trusted financial adviser.