NEW YORK – The Internal Revenue Service (IRS) has reminded retirees who turn 72 in 2022 that in most cases Saturday, April 1 is the deadline to start receiving payments from your Individual Retirement Accounts (IRA), 401(k)s, and similar retirement plans from your employer.
The payments, called required minimum distributions (RMD), are usually made before the end of the year. But anyone who turns 72 in 2022 is covered by a special rule that allows employers and pension plan participants to wait until April 1, 2023 to receive their first RMD. In other words, generally, the special April 1 rule applies to IRA owners and other participants in those plans who were born after December 31, 1949.
Changes that have been approved for the pension and retirement system force many employers to automatically enroll their workers in the schemes. Telemundo 52 Responde tells you how they can be useful to you.
Two installments in the same year
The April 1 deadline for RMDs only applies to the required distribution in the first year. For all subsequent years, the RMD must be completed by December 31.
This means that taxpayers who receive their first required distribution (for 2022) in 2023, on or before April 1, must receive their second RMD (for 2023) no later than December 31, 2023. Although the first distribution is currently the distribution required for 2022, it is taxable in 2023 and must be reported on the 2023 tax return, along with the regular 2023 distribution.
Types of pension plans that require RMDs
These required distribution rules apply to owners of Traditional IRA, Simplified Employee Retirement Plan (SEP), and Savings Incentive (SIMPLE) accounts, so long as the original owner is still alive. It also applies to participants in various employment retirement plans, including 401(k), 403(b) and 457(b) plans. They do not apply to Roth IRA accounts.
An IRA beneficiary must declare the value of the RMD to the owner of the IRA or provide the estimate to the owner. Often, the beneficiary indicates the RMD amount in box 12b of Form 5498. For a 2022 distribution, required before April 1, 2023, this amount can be found on Form 5498 2021 which is normally issued to the owner during the first part of 2022.
Some may delay RMDs
Although the April 1 deadline is required for traditional IRA owners and most employment pension plan participants, some people with employment plans may wait longer to receive their RMD.
Most members who are still working for that employer can wait until April 1 of the year following their retirement to begin receiving these distributions, if their work plan permits. This RMD exception does not apply to 5% owners of the company sponsoring the retirement plan or to participants in the SEP and SIMPLE IRA plans. See Excess Accumulation Tax in Publication 575 for details.
Employees of public schools and some tax-exempt organizations with pre-1987 403(b) plan adjustments should check with their employer, plan administrator, or provider for information on how to handle these adjustments.
Online tools and IRS publications that may be helpful
Many answers to questions about RMDs can be found in a special Frequently Asked Questions section on IRS.gov. Most taxpayers use Table III (Uniform Life) to calculate their RMD. Married taxpayers whose spouse is more than 10 years younger and is their sole beneficiary use Table II.
For the RMD 2022 (required by April 1, 2023) use the life expectancy tables in Appendix B of Publication 590-B. As shown in Table III, the RMD for a 72 year old in 2022 will generally be based on a distribution period of 27.4 years. Divide the balance as of December 31, 2021 by 27.4 to get the RMD for 2022. Publication 590-B contains worksheets, examples, and other information that can help anyone set up their RMD.
New 73-year rule begins in 2023
For those planning ahead, from 2023 pensioners can wait until they are 73 to start receiving RMDs. Visit IRS.gov for more information on this and other changes affecting retirees and retirement plan participants.
Do you have savings, good credit, a retirement plan? At Telemundo 47 Responde, we offer tips to improve your personal finances in 2023.