RMDs are usually made at year end, but folks who turned 72 years old in 2022 are now covered by a new rule that allows the first required minimum distribution to be delayed until April 1st of 2023.

For all years following the first year, RMDs have to be made by December 31st. So if you receive your first RMD for 2022 on time (on or before April 1, 2023), then you must receive your second RMD (the one for 2023) by December 31, 2023. Sound confusing? It is, because the first distribution is actually the 2022 required distribution that was delayed until April 1, 2023, for people who turned 72 last year.

If your 72 birthday was in 2022, then the first RMD you receive this April will be taxable for 2023 and will be reported on your 2023 federal income tax return. That will be in addition to the second RMD that you will receive at the end of this year by December 31, 2023.

An RMD is money required to be taken out of a retirement savings plan once the account holder reaches a certain age. RMD rules apply to traditional IRAs and 401(k) plans, but don’t apply to Roth IRAs. To calculate your RMD, divide your year-end account balance from the previous year by the IRS life-expectancy factor based on your birthday in the current year (see chart below). You can take your annual RMD in a lump sum or in monthly or quarterly payments. Delaying the RMD until year-end gives your money more time to grow tax-deferred.

The SECURE 2.0 Act increased the required minimum distribution age to 73 beginning January 1, 2023. In ten years, the RMD age will move to 75. However, as has already been mentioned, if you turned 72 during 2022, you must take your first RMD by April 1, 2023. SECURE 2.0 also reduced RMD penalties beginning this year. The penalty is now a 25% (was 50%) excise tax on the late RMD, or on RMDs that don’t meet the minimum amount. However, if you correct the mistake, the penalty can be reduced to 10%.

Reach Out To Us: “No fooling around…,” if you were born after December 31, 1949, the “April 1st rule” applies for taking your first required minimum distribution. Delays for taking RMDs raise tax implications and can present practical challenges if you use RMDs to cover living expenses. As a result, it is important to consider how any RMD changes could impact you, and plan accordingly. If you turned 72 during 2022 and are covered by the special “April 1” rule, keep in mind that for federal tax purposes, RMDs are taxed as ordinary income. State taxes can also apply. Taking two RMDs in a single year can have potentially significant tax consequences by pushing you into a higher federal income tax bracket. To consider other strategies for simplifying RMDs, reducing their taxable impact, or using Qualified Charitable Distributions, contact Paul Wieseneck, CPA, RSSA, at 561-209-1102, or PWieseneck@TFGFA.com.

TFG Financial Advisors, LLC is a registered investment advisor.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results.  Investments involve risk and are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.