When it comes to taking RMDs from his IRAs and 401(k) plans, my father has a hard time dealing with it every year. It’s not necessary to take much money out of his retirement funds each year because of his solid work savings for retirement when he was younger.
Even though he has been reluctantly taking RMDs for some years, in 2021, he will have only just begun. You may have to take your first RMD by April 1, 2022, if you haven’t already if you turned 72 this year. You have until the end of this week to take action!
If you fail to withdraw your first RMD by the April 1 deadline, you could face a significant IRS penalty. This should be avoided at all costs.
Mandatory Minimum Distribution Deadlines
“You cannot hold retirement funds in your account indefinitely,” according to the IRS. Because of this, once you reach the age of 72, you must begin withdrawing funds from your retirement accounts on a yearly basis (except for Roth IRAs). The owner of a Roth IRA does not have to take distributions until after his or her death.
Retirement income distributions (RMDs) from your current employer’s 401(k) plan can also be delayed until April 1 of the year after your retirement. Again, the decision is entirely up to you.
If you delay your first RMD, it might either benefit or harm you. In the event that you postpone your first RMD until the following April 1, you’ll be forced to take two RMDs in that year: an RMD for the year in which you delayed taking it (that is, the year in which you turned 72), plus the one you would ordinarily have to take by December 31 of the same year in question.
Your tax bill can rise as a result of these unforeseen consequences if you have to pay two RMDs a year, for example, you may be placed at a higher tax rate or have your Social Security benefits reduced in value.
As an alternative, if you made a lot of money during your first RMD year after turning 72 or retiring, you may want to postpone it until the next year. There is no one-size-fits-all answer.
Calculating the RMD
According to Publication 590-B, the IRS provides a life expectancy factor that can be used to determine how much you must remove from your IRA each year. For the calculation of RMDs for 2022, we’ve developed an easy-to-use tool that does work for you.
(Note: Use Publication 590-B for the 2020 tax year for first-time RMDs payable on April 1, 2022, for those who reached 72 in 2021.)
RMDs are calculated individually for each of your conventional IRAs, but you can combine the RMDs and take the total from anyone or more of your IRAs. As a result, it is necessary to compute and take RMDs from each 401(k) plan individually. RMDs are calculated by your 401(k) plan sponsor or an administrator.
Failure to take RMD will result in a fine
Failure to adhere to the RMD guidelines will result in severe consequences. The excise tax on the RMD amount that was not disbursed may be due if your retirement plan disbursements are less than the RMD for the year.
There are ways to avoid paying the penalty tax, though. Take whatever action is necessary to ensure that you don’t miss your required minimum distribution (RMD) by requesting a waiver. If you need a waiver, fill out Form 5329 and include a statement outlining the problem and the efforts you’re making to correct it.
Clock-Breaking
As of April 1, if you haven’t withdrawn your first RMD, don’t wait any longer! Set up a payout from your retirement account as soon as possible by contacting the financial institution that manages it.
Online RMD setup is available from the majority of the world’s largest banks and brokerages. For those who don’t meet the deadline, some organizations will even automatically execute an RMD if they don’t receive a completed form or online request before the deadline. Your RMD can be withheld for income tax purposes if you want to do so. But hurry!