The IRS has issued a reminder for retirees who turned 72 during 2022 that, in most cases, Apr. 1, 2023, is the last day to begin receiving required minimum distributions—or RMDs—from Individual Retirement Arrangements (IRAs), 401(k)s and similar retirement plans.
Special Rule
If you reached age 72 during 2022, you’re covered by a special rule that allows IRA account owners and retirement plan participants to wait until April 1, 2023, to take their first RMD. The special April 1 rule applies to IRA owners and other participants in these plans who were born after Dec. 31, 1949.
Two Distributions In One Year
Here’s where it gets tricky. The April 1 RMD deadline only applies in the first year that you have to take a distribution. For all later years, the RMD must be made by Dec. 31. That’s true in your first year, too. This means that if you receive your first RMD for 2022 on or before April 1, 2023, you must take your second RMD for 2023 by Dec. 31, 2023. Even though you can take the distribution in 2022, it’s taxable and reportable in 2023, along with your regular 2023 distribution. So, that means two distributions in one year—but it only happens once.
While the rule allows you to wait, it’s worth noting that you don’t have to delay taking your RMD. You may not want to, for example, if taking two distributions in one year might push you into a higher tax bracket or impact other benefits. In contrast, if you made a lot of money in the year you turned 72, you might want to wait so that you can defer the tax.
Penalties May Apply
If you don’t withdraw your first RMD by the due date, or if you don’t take the right amount, you could be hit with a penalty.
Applicable Rules
These rules apply to owners of traditional, SEP, and SIMPLE IRAs while the original owner is alive. They also apply to participants in various workplace retirement plans, including 401(k), 403(b), and 457(b) plans.
They don’t apply to Roth IRAs—distributions from a Roth IRA are not required until after the owner’s death.
Some people with workplace plans can wait a bit longer—to retirement. This exception does not apply to 5% of business owners sponsoring the retirement plan or to participants in SEP and SIMPLE IRA plans.
RMD Amounts
RMD calculations can be complicated. Typically, the amount you’re required to withdraw is figured each year by dividing your previous year’s account balance by your life expectancy. You’ll find your life expectancy factor in IRS Publication 590-B.
If you have more than one traditional IRA, you’ll have to figure the withdrawals for each separately—but you can take the total amount from one or more of your IRAs. The same isn’t true for 401(k) accounts—you must calculate and take your RMD from each plan separately.
The IRS also has worksheets to help you calculate the amounts.
But if you don’t have the patience or math skills to figure it out, you can ask for help—most financial advisors have software that can determine your RMD.
And don’t forget about the “M” in RMD: you must withdraw at least that amount, but there’s nothing to stop you from withdrawing more.
You can find out more about RMDs on the IRS website here.
Secure Act 2.0
Beginning in 2023, there are some new rules thanks to Secure Act 2.20. Specifically, the age to start taking RMDs increases to age 73 in 2023 (it moves up to 75 in 2033). Additional rules, including lower penalty amounts, will also apply.