The deadline for the minimum distributions required in the first year is April 1st
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If you turned 72 in 2022, the last chance for your first mandatory pension withdrawal is April 1 — or face a hefty tax penalty.
In general, you have to start making these annual withdrawals, known as required minimum distributions or RMDs, by a certain age. Prior to 2020, RMDs began at age 70½, and the Secure Act of 2019 raised the starting age to 72. In 2022, Secure 2.0 raised the age to 73 beginning in 2023.
While the annual deadline for RMDs is December 31, there is a special exception for the first year that moves the due date to April 1.
Secure 2.0 RMD rules create confusion
Brett Koeppel, a certified financial planner and founder of Eudaimonia Wealth in Buffalo, New York, said Secure 2.0 has contributed to the confusion over who needs to withdraw money from retirement accounts and when.
Although Secure 2.0 raised the starting age for RMDs to 73 from 2023, retirees who turn 72 in 2022 still have to withdraw the money by April 1 to avoid a “very hefty” penalty, Koeppel said.
RMDs apply to both pre-tax and Roth 401(k)s and other workplace plans, along with most individual retirement accounts. There are no RMDs for Roth IRAs until after the account holder’s death.
The amount you need to withdraw annually for RMDs is typically calculated by dividing each account’s prior balance as of December 31st by a “payment period”. published annually by the IRS.
Secure 2.0 reduced the RMD penalty
Missing your RMD or not withdrawing enough will incur a penalty of 25% of the amount you should have withdrawn. Secure 2.0 has reduced the penalty from 50% to 25% as of 2023, with the option to lower it further to 10% if you take your missed RMD during the “correction window”.
The correction window is typically the end of the second tax year following the year of the missed RMD, explained George Gagliardi, a CFP and founder of Coromandel Wealth Management in Lexington, Massachusetts.
“I’ve had clients in the past who were missing RMDs and in those cases I was able to fix it by taking the RMD as soon as possible,” he said, which included filling it out Form 5329 for the year of the missed RMD, put “reasonable cause” on the penalty line, write a letter of justification, and submit both documents to the IRS.
“In the past, the IRS has been lenient on missed RMDs, but with the new reduced penalties, they may become more aggressive,” he said. “We’ll see how that develops over time.”
The downside of waiting to take your first RMD
If you delay your first RMD until April, the second is still due by December 31, doubling RMD earnings for the year, Gagliardi said.
“If it’s a small amount, it doesn’t matter much to your tax situation,” he said. “But if they have large tax-deferred accounts, that double hit in one year could well push them into a different tax bracket,” leading to tax issues such as tax deductions higher Medicare premiums or making it more difficult to deduct medical expenses.
Gagliardi said he never recommends waiting until April 1 to start first-year RMDs “unless your income and tax situation warrants it.”
https://www.cnbc.com/2023/03/17/the-deadline-for-first-year-required-minimum-distributions-is-april-1.html The deadline for the minimum distributions required in the first year is April 1st