Traditional IRA Distributions

[Summit1]

This taxpayer is over age 59 1/2 but will not be 72 until mid 2024. This taxpayer elected taking some distributions for financial reasons in 2014. In 2020 she did not take a distribution due to the Secure Act changes. If the taxpayer was already receiving distributions prior to 2020, should they have begun the distributions again in 2021? 

[The-Tax-Lady]

There is a difference between an occasional distribution requested by a taxpayer from their retirement account and a Normal distribution received on a scheduled basis when the taxpayer retires.

[Summit1]

I believe I understand what you are saying. The 1099-R's were coded 7. The tax payer was not retired so if they were elected distributions. I am assuming that the tax payer would not be required to take one if they were not "retired".

[Just-Lisa-Now-]

RMDs are not required until they turn 72.   Until then, therye just regular distributions.  You dont have to be "retired" to pull the money out between the ages of 59½ and 72

[The-Tax-Lady]

Do you mean the Required Minimum Distribution that a taxpayer must take when they reach age 72?

"The 1099R's were coded 7", do you mean the ones from 2014? Code 7 is a normal distribution.

Being "retired" has nothing to do with the requirement for the RMD. It is age based.

[qbteachmt]

There seem to be a mix of concepts here, so let's review.

The SECURE Act changed the RMD age. The CARES Act waived RMD for 2020.

Someone taking Required Minimum Distributions (RMD) means they hit the age of that requirement. There was a pause for RMD in 2020, so anyone already taking their RMD because they hit 70 1/2, did not have to take the one in 2020. No one had to start taking theirs in 2020. For everyone else, in 2022 and later, you are subject to RMD when you hit 72.

RMD has nothing to do with Retired or Not Working. It's just the IRS wanting some of that money removed from tax deferral and have it taxed.

Your client could have signed up for Substantially Equal Periodic Payments (SEPP), which is a different concept, yet. It's more like a contract or an agreement to take payments, from an ex-employer plan, even allowed before you reach 59 1/2, and must continue for 5 years. This was not in the CARES Act.

Someone who is 59 1/2 can take money from their IRA/retirement accounts, because that's why the accounts exist and what they are provided to do. That is not an every year requirement, and that is not an ongoing process, just because you do it now and then. If you did it before 59 1/2 (or, 55 for an ex-employer) then you might subject to an early distribution penalty.

So: taking a distribution in 2014 does not trigger anything else brought into the discussion, for this taxpayer.

[sjrcpa]

Did she start taking "substantially equal periodic payments" ( I think that's what they call this exception to the 10% penalty) before she turned 59 1/2?

[TaxGuyBill]

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@sjrcpa wrote:

Did she start taking "substantially equal periodic payments" ( I think that's what they call this exception to the 10% penalty) before she turned 59 1/2?

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When I first saw this question, that was my thought too ... but I couldn't think of those right words so I didn't say anything.   🤣