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Take Retirement Plan Distributions by December 31

by | Aug 16, 2023 | Tax planning, Taxes | 0 comments

For several years, IRS regulations prohibited people from keeping retirement assets in their retirement accounts for long stretches of time. When individuals reach the age of 70 1/2, they should begin withdrawing from their IRA, SIMPLE IRA, SEP IRA, or retirement plan account. These are referred to as required minimum distributions, or RMDs.

The Setting Every Community Up for Retirement Enment (SECURE) Act, passed in 2019, modified these restrictions. As a result, if your 70th birthday is on or after July 1, 2019, you are not required to withdraw funds until you reach the age of 72. What taxpayers need to know about RMDs is as follows:


Special rule for first year RMDs.

Taxpayers who turn 72 after July 1, 2022, should generally begin taking required minimum distributions before the finish of the tax year (December 31). A unique clause, however, permits first-year beneficiaries of these payments, those who turned 72 in 2022, to delay receiving their first RMDs until April 1, 2023. The benefit of this particular rule is that amounts paid to these taxpayers in early 2023 (up to April 1, 2023) are taxed in 2023, even if they can be included against their 2022 RMD.

The unique April 1 deadline applies only to the first year’s RMD; all following years’ RMDs should be made by December 31. A taxpayer who became 72 in 2021 and obtained the first RMD (for 2021) on April 1, 2022, for example, must still receive an additional RMD (for 2022) by December 31, 2022.


Calculating RMDs

The RMD for 2022 is calculated using the taxpayer’s life expectancy on December 31, 2022, as well as the account balance on December 31, 2021. An IRA trustee then must offer to compute it for the owner or disclose the amount of the RMD on Form 5498 to the IRA owner.

The RMD is calculated for the majority of taxpayers using Table III (Uniform Lifetime Table) from IRS Publication 590-B. For instance, a taxpayer turning 72 in 2021 would be expected to make a distribution based on a life expectancy of 27.4 years. Table II applies to a taxpayer whose husband or wife is more than 10 years younger than the taxpayer and is the taxpayer’s sole beneficiary. Please do not hesitate to contact us if you require assistance with this.


There is an exception to the RMD restrictions.

Though RMD laws apply to all owners of conventional, SEP, and SIMPLE IRAs as well as participants in employment retirement plans, certain employees may have to wait longer to get their RMDs. Employees who are currently working can usually wait until April 1 of the year after retirement to start collecting these payouts, assuming their plan permits it. Nonetheless, there may be a tax on excessive accumulations. Employees of public schools and some tax-exempt organizations who had 403(b) plan accruals before to 1987 should consult with their employer, plan administrator, or provider to determine how these accruals should be treated.


Roth and inherited IRAs have different regulations.

It’s also worth noting that Roth IRAs don’t demand withdrawals until the owner dies. There are additional particular regulations for inherited IRA owners.


Please contact us if you have any inquiries concerning RMDs or other tax issues.


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