Early this year, Congress passed a law saying we don’t have to take 2020 Required Minimum Distributions (RMDs) from our IRAs. But if I don't take my 2020 RMD this year, what happens next year? Does my 2021 RMD double?
No. Your 2021 RMD calculation won't be affected by whether or not you take a 2020 distribution.
Next year’s RMD will be a slightly bigger chunk of your individual retirement account than your RMD would have been this year, but that’s because you'll be a year older. The actual dollar amount will depend on your IRA balance on Dec. 31, 2020.
Every year, your RMD is based on the previous year's Dec. 31 retirement account balance and your current life expectancy factor, which you’ll find in the Uniform Lifetime actuarial table in Internal Revenue Service publication 590.
If you're now 73 years old, for example, your life expectancy factor is 24.7. So if your Dec. 31, 2019, IRA balance was $200,000, your 2020 RMD is $200,000 divided by 24.7, or $8,097.17.
Let's say you decide to take advantage of the 2020 RMD waiver, and don't take that distribution. In 2021, you'll be 74 years old, so your life expectancy factor will be 23.8. If your 2020 year-end IRA balance is still $200,000, your 2021 RMD will be $200,000 divided by 23.8, or $8,403.36.
If your balance has grown to $225,000 by the end of 2020, your 2021 RMD will be $9,453.78 ($225,000 divided by 23.8). And if your 2020 year-end balance has dropped to $175,000, your 2021 RMD will be $7,352.94 ($175,000 divided by 23.8).
Of course, you can always withdraw more than your RMD from your IRA. But additional withdrawals don't count toward the next year's RMD.
The bottom line
Annual RMDs are based on your life expectancy and retirement account balance.
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