Connect with us

Hi, what are you looking for?


Retirement Plan: Retirees Should Withdraw Before April 1 To Avoid 25% Tax Penalties

Some retirees have until April 1 to avoid a 25% tax penalty.(Photo:

Some retirees have until April 1 to avoid a 25% tax penalty.

If you turn 72 in 2022, you have until April 1 to make your first mandatory retirement plan withdrawal or face a hefty tax penalty.

In most cases, these yearly withdrawals, known as required minimum distributions, or RMDs, must begin by a certain age. Prior to 2020, RMDs began at the age of 712, but the Secure Act of 2019 raised the starting age to 72. Secure 2.0 raised the age to 73 in 2022, with effect in 2023.

While the yearly deadline for RMDs is December 31, there is a special exception for the first year that moves the deadline to April 1.

The Secure 2.0 RMD rules are perplexing.

According to Brett Koeppel, a certified financial planner and the founder of Eudaimonia Wealth in Buffalo, New York, Secure 2.0 has increased the confusion about who needs to withdraw money from retirement accounts and when.

Although Secure 2.0 increased the starting age for RMDs to 73 beginning in 2023, retirees who turn 72 in 2022 must still withdraw the funds by April 1 to avoid a “very steep” penalty, according to Koeppel.

RMDs are required for both pretax and Roth 401(k)s and other workplace plans, as well as the majority of individual retirement accounts. Roth IRAs do not require RMDs until the account owner dies.

The amount you must withdraw each year for RMDs is typically calculated by dividing the prior December 31 balance of each account by a “distribution period” published by the IRS each year.

The RMD penalty was reduced in Secure 2.0.

If you fail to take your RMD or do not withdraw enough, you will face a 25% penalty on the amount you should have withdrawn. Starting in 2023, Secure 2.0 reduced the penalty from 50% to 25%, with the possibility of further reduction to 10% if you take your missed RMD during the “correction window.”

If you turn 72 in 2022, you have until April 1 to make your first mandatory retirement plan withdrawal or face a 25% tax penalty.(Photo:

According to George Gagliardi, CFP and founder of Coromandel Wealth Management in Lexington, Massachusetts, the correction window is typically the end of the second tax year following the year of the missed RMD.

“I have had clients miss RMDs in the past, and was able to fix it in those cases by taking the RMD as soon as possible,” he said, which included filling out Form 5329 for the year of the missed RMD, writing a letter of explanation, and mailing both documents to the IRS.

“Previously, the IRS was lenient about missed RMDs,” he said, “but with the new reduced penalties, they may become more aggressive.” “We’ll see how this evolves over time.”

The disadvantage of deferring your first RMD

If you postpone your first RMD until April, the second one is still due by Dec. 31, effectively doubling your RMD income for the year, according to Gagliardi.

“If it’s a small amount, it won’t make a big difference in their tax situation,” he says. “However, if they have large tax-deferred accounts, that double hit in one year could easily push them up into another tax bracket,” potentially resulting in tax issues such as higher Medicare premiums or making it more difficult to deduct medical expenses.

Gagliardi advises against deferring first-year RMDs until April 1 “unless your income and tax situation warrant it.”

Read also: Kentucky SNAP Checks 2023 – 4 Main Requirements

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *