As the filing deadline to submit 2021 tax returns rapidly approaches (Monday, April 18, 2022) the Internal Revenue Service (IRS) reminded retirees who turned 72 during the last half of 2021 that, in most cases, Friday, April 1, 2022, is the last day to begin receiving payments from Individual Retirement Arrangements (IRAs), 401ks and similar workplace retirement plans.
Required minimum distributions (RMDs) are normally made by the end of the year. But anyone who reached age 72 after June 30, 2021, is covered by a special rule that allows IRA account owners and participants in workplace retirement plans to wait until as late as April 1, 2022, to take their first RMD.
In other words, in general, the special April 1 rule applies to IRA owners and other participants in these plans who were born after June 30, 1949.
Acknowledging that Americans are living and working longer, the SECURE Act increased the RMD age from 70½ to 72, when it passed in December 2019.
Two payments in the same year
The April 1 RMD deadline only applies to the required distribution for the first year. For all later years, the RMD must be made by December 31.
This means that taxpayers who turned 72 after June 30, 2021, and receive their first required distribution (for 2021) in 2022 on or before April 1, must receive their second RMD (for 2022) by December 31, 2022.
Even though the first distribution is actually the required 2021 distribution, it’s taxable in 2022 and reported on the 2022 tax return – along with the regular 2022 distribution.
Types of retirement plans requiring RMDs
These required distribution rules apply to owners of traditional, SEP, and SIMPLE IRAs while the original owner is alive. They also apply to participants in various workplace retirement plans, including 401k, 403(b), and 457(b) plans. RMDs don’t apply to Roth IRAs.
An IRA trustee must either report the amount of the RMD to the IRA owner or offer to calculate it. Often, the trustee shows the RMD amount on Form 5498 in Box 12b. For a 2021 RMD, required by April 1, 2022, the RMD amount is shown on the 2020 Form 5498, normally issued to the owner during the first part of 2021.
Some can delay RMDs
Though the April 1 deadline is mandatory for all owners of traditional IRAs and most participants in workplace retirement plans, some people with workplace plans can wait longer to receive their RMD.
Most participants who are still working for that employer can wait until April 1 of the year after they retire to start receiving these distributions if their workplace plan allows. This RMD exception does not apply to 5% owners of the business sponsoring the retirement plan or to participants in SEP and SIMPLE IRA plans. See Tax on Excess Accumulation in Publication 575 for details.
Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator, or provider to see how to treat these accruals.
IRS online tools and publications can help
Many answers to questions about RMDs can be found at RMD FAQs on IRS.gov. Most taxpayers use Table III (Uniform Lifetime) to figure their RMD. Married taxpayers whose spouse is more than 10 years younger and is their only beneficiary use Table II.
Because this and other life expectancy tables were updated for 2022, recipients need to use a different version of this table to figure their 2021 RMD, compared to their 2022 RMD. The required withdrawals in 2022 and future years will generally be smaller.
For a 2021 RMD (due April 1, 2022), use the life expectancy tables in Appendix B of the Pub. 590-B PDF used for preparing 2020 returns. As shown in Table III, the RMD for a person age 72 in 2021 will normally be based on a distribution period of 25.6 years. Divide the December 31, 2020, balance by 25.6 to get the RMD for 2021.
For a 2022 RMD (due December 31, 2022), use the revised life expectancy tables in Appendix B of the Pub. 590-B PDF used for preparing 2021 returns. As shown in the revised Table III, the RMD for a person age 72 in 2022 will normally be based on a distribution period of 27.4 years. Divide the December 31, 2021, balance by 27.4 to get the RMD for 2022.
Pub. 590-B has worksheets, examples, and other information that can help anyone figure out their RMD. Visit IRS.gov for more information.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
