retirement

The Deadline for Your First RMD Is April 1

Time is running out if you turned 70½ in 2019 and haven't yet withdrawn funds from your retirement account.

UPDATE: In response to the coronavirus pandemic, the CARES Act suspended RMDs for 2020. This includes first-time RMDs that were due on April 1, 2020. For other coronavirus-related changes, see 11 Ways the Stimulus Package and Other Government Measures Could Help You in 2020.

The rules on when retirees must take required minimum distributions (RMDs) changed as of January 1, 2020, thanks to the SECURE Act, which was signed into law on December 20, 2019. Under the old rules, anyone with money in a traditional IRA, 401(k) or other retirement account (except a Roth IRA) was forced to take RMDs after turning age 70½. Now, the SECURE Act delays those required distributions until after reaching age 72. However, the old rules still apply to those who turned 70½ before the end of 2019. As a result, if you turned 70½ in 2019 (i.e., you were born between July 1, 1948, and June 30, 1949), you might have to take your first RMD by April 1, 2020, if you haven't done so already.

If you don't take an RMD by the deadline, or if your distribution wasn't large enough, you may be hit with a 50% penalty on the amount not distributed as required.

Due Dates for Required Minimum Distributions

As the IRS tells us, "you cannot keep retirement funds in your account indefinitely." That's why you're generally required to start taking money out of your retirement accounts (except Roth IRAs) when you reach your designated age (70½ or 72). (Distributions from a Roth IRA are not required until after the owner's death.)

Normally, you must take your annual RMD by December 31. However, you can delay your first RMD until April 1 of the year following the year in which you reach age 70½ or 72 (depending on your date of birth). You don't have to delay the RMD, but it's an option.

If you're still working and don't own at least 5% of the company, you can also delay taking RMDs from your current employer's 401(k) plan until April 1 of the year after the year you retire. Again, it's your choice.

Delaying your first RMD can work for you or against you. If you delay your first RMD to the following April 1, you'll have to take two RMDs in that year: One for the year you delayed the RMD (i.e., for the year you turned 70½ or 72), plus the one you'd normally have to take by December 31 for the year. This could trigger unintended consequences that increase your tax bill. For example, two RMDs in one year might kick you into a higher tax bracket or affect the amount of Social Security benefits that are subject to tax. One the other hand, if you had a lot of income in the year you turned 70½ (or 72) or retired, it might make sense to delay your first RMD to avoid similar problems that year. It all depends on your circumstances.

Calculating Your RMD

Generally, the minimum amount you're required to withdraw each year is calculated by dividing the account balance at the end of the previous year by a life expectancy factor that the IRS publishes in Publication 590-B. (We've created an easy-to-use tool that computes RMDs for you.)

If you have more than one traditional IRA, you need to determine a separate RMD for each IRA, but you can add up the RMD amounts and take the total from any one or more of your IRAs. However, if you have multiple 401(k) accounts, you have to calculate and take the RMD from each plan separately. (Your 401(k) plan sponsor or administrator should calculate the RMD for you.)

Penalty for Failing to Take RMD

There's a stiff penalty for failing to follow the RMD rules. If your retirement plan distributions are less than the RMD for the year, you may have to pay an excise tax equal to 50% of the RMD amount that was not distributed.

You may, however, be able to get out of paying the penalty tax. You can request a waiver if your failure to take the RMD is due to a reasonable error and take whatever steps are necessary to increase your distribution to the required level. To request a waiver, submit Form 5329 with a statement explaining the error and the steps you're taking make things right.

Beating the Clock

If your first RMD is due April 1 and you haven't withdrawn the necessary funds yet, don't delay. Contact the financial institution administering your retirement account right away and set up a distribution. Most large financial institutions allow you to set up an RMD online. Some companies will even process an RMD automatically if they don't receive a completed form or online request before the deadline (so you aren't hit with a penalty). You can also decide how much, if any, to withhold from your RMD for income taxes. But do it now!

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