When Do You Need to Take Your Required Minimum Distribution (RMD)?

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Don’t forget Congress has changed the required minimum distribution age to 73 for those turning 72 after December 31, 2022. Save your 2022 year-end statements or work with your advisor to determine the right withdrawal strategy for you. Remember, the later in life you take the distribution, the lower the IRS life expectancy divisor, which essentially increases the potential for higher withdrawal requirements with a lower divisor. Stay up on the changes.

Here’s how the IRS explains the required dates for your RMD:

Required beginning date for your first RMD

• IRAs (including SEPs and SIMPLE IRAs)
  • April 1 of the year following the calendar year in which you reach age 72 (73 if you reach age 72 after Dec. 31, 2022).
• 401(k), profit-sharing, 403(b), or other defined contribution plan
  Generally, April 1 following the later of the calendar year in which you:
  • reach age 72 (73 if you reach age 72 after Dec. 31, 2022), or
  • retire (if your plan allows this).

See the chart comparing IRA and defined contribution plan RMDs.

Example: Jodie has decided to retire from their employer on her 73rd birthday, December 31, 2022. The employer’s 401(k) plan allows participants to delay taking RMDs until after they retire. Jodie’s first RMD is due by April 1, 2023, for the 2022 year (based on December 31, 2021, balance). Their second RMD is due on December 31, 2023, for 2023 (based on December 31, 2022, balance). Subsequent RMDs are due on December 31st annually thereafter.

If Jodie was a 5% owner of the employer, her first RMD would have been due for 2021.

If Jodie also had an IRA, her first RMD from her IRA was due by April 1, 2022, for the 2021 year. Jodie’s RMD from her IRA doesn’t affect the RMD due from the retirement plan.

Terms of the plan govern

A retirement plan document may require you to begin receiving distributions after you reach age 72 (73 if you reach age 72 after Dec. 31, 2022), even if you’re still employed.

Date for receiving subsequent required minimum distributions

For each year after your required beginning date, you must withdraw your RMD by December 31.

For the first year following the year you reach age 72, you will generally have two required distribution dates: an April 1 withdrawal for the year you turn 72 and an additional withdrawal by December 31. You can make your first withdrawal by December 31 of the year you turn 72 instead of waiting until April 1 of the following year. This would allow the distributions to be included in your income in separate tax years.

Example: John reached age 72 on August 20, 2022. He must receive his 2022 required minimum distribution by April 1, 2023, based on his 2021 year-end balance. John must also receive his 2023 required minimum distribution by December 31, 2023, based on his 2022 year-end balance.

If John receives his initial required minimum distribution for 2022 by December 31, 2022, then his first RMD is included on his 2022 income tax return and the second on his 2023 return. However, if John waits to take his first RMD until April 1, 2023, then both his 2022 and 2023 distributions are included in income on his 2023 income tax return.

Source: IRS.gov

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.

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