The IRS is reminding Americans born in 1950 or earlier that they have important upcoming deadlines for required minimum distributions (RMDs) from their retirement plans and individual retirement arrangements (IRAs) to avoid penalties.
RMDs are the minimum amounts that many retirement plans and IRA account owners must generally withdraw annually after reaching 72. Account owners can delay taking their first RMD until April 1st, following the later of the calendar year they reach age 72 or, in a workplace retirement plan, retire. RMDs are considered taxable income and may be subject to penalties if not timely taken.
Traditional IRAs, SEP, SARSEP, and SIMPLE IRA account holders must begin taking RMDs at age 72, even if they are still working. Account holders who reach age 72 in 2022 must take their first RMD by April 1st, 2023, and the second RMD by December 31st, 2023, and each year after that.
In 401(k), 403(b), and 457(b) plans, profit-sharing and other defined contribution plans, and defined benefit plans, the first RMD is due by April 1st of the later of the year they reach age 72, or the participant is no longer employed. A 5% employer owner must begin taking RMDs at age 72.
RMDs may not roll over to another IRA or retirement plan. Roth IRAs do not require distributions while the original owner is alive. IRA trustees or plan administrators must either report the amount of the RMD to the IRA owner or offer to calculate it. An IRA owner or trustee must calculate the RMD separately for each IRA owned.
Not taking a required distribution or not withdrawing enough could mean a 50% excise tax on the amount not distributed. The IRS has worksheets to calculate the RMD and payout periods.
An RMD may be required for an IRA, retirement plan account, or Roth IRA inherited from the original owner. Additionally, 2020 coronavirus-related distribution RMDs were waived. An account owner or beneficiary who received an RMD in 2020 could return it to their IRA or other qualified plans to avoid paying taxes on that distribution.
Taxpayers can find forms, instructions, publications, Frequently Asked Questions regarding RMDs, and other easy-to-use tools at IRS.gov. You can also contact your accounting professional or us if you have any questions or concerns!