By Sarah Brenner, JD
Director of Retirement Education

The CARES Act waived required minimum distributions (RMDs) for 2020, but they are back for 2021. The return of RMDs for this year has raised questions about how these distributions should be calculated. Here is what you need to know if you must take a 2021 RMD.

Many IRA holders have had concerns that there would be a need to take both an RMD for 2020 and an RMD for 2021 this year. That is not the case. The 2020 RMD was waived, not delayed. It does not need to be taken. The only distribution that needs to come out this year is the 2021 RMD.

What is the impact of the 2020 RMD waiver on how the RMD for 2021 is calculated? If you are taking an RMD from your own IRA, the rules are the same as always. Most IRA owners will simply need to find the factor that corresponds to their age on the IRS Universal Lifetime table and then divide their December 31, 2020 IRA balance by that factor. This is all that needs to be done to determine the RMD.

For spouse beneficiaries who have inherited IRAs, the rules will work similarly. The only difference is the that instead of the IRS Universal Lifetime table, the IRS Single Life Expectancy table would be used.

For nonspouse beneficiaries with IRAs inherited prior to the enactment of the SECURE Act in 2020, it is a little more complicated. The base factor for calculating RMDs from the Single Life Expectancy table is determined in the year following the year of death. Each year the beneficiary would subtract one from that base factor and then divide the result into the December 31 prior-year balance to get the RMD.

How is the waived 2020 RMD year accounted for in this calculation? Well, even though the RMD is skipped for 2020, the year must still be included in the calculation. That means subtracting not one but two from the factor used in 2019 to get the 2021 factor. Once the factor is determined, it can be divided into the December 31, 2020 balance to get the RMD amount for 2021.

Example: Maya inherited an IRA from her mother Arlene who died in 2018. In 2019, the first year that an RMD was required from the inherited IRA, Maya was 32. The factor used to determine her RMD was 51.4. For the 2021 RMD, the factor which would be used would be 49.4 (51.4-2