Complete your RMD by April 1 to avoid a 25% penalty on your retirement
Some retirees have just one day remaining to complete the first required minimum distribution or face a significant fine.
If you are eligible for a retirement plan - whether that be a 401(k), workplace plan or individual retirement account - you should be aware of an upcoming deadline that could have huge tax repercussions.
If you turned 73 in 2024, you have until April 1 to submit your first required minimum distribution (RMD) or face a 25% penalty.
Experts usually recommend that those with eligible retirement plans take their first RMD in the year that they turn 73 to avoid making two withdrawals in the same year. However if you celebrated your 73rd birthday last year and have an eligible retirement plan, you have until Tuesday, April 1 to complete your first RMD and avoid a significant fine.
What is a required minimum distribution?
The required minimum distribution is the minimum amount that you need to withdraw from your retirement account in each year of eligibility. The age of 73 is the point at which most retirees will be required to make an RMD on RA, SEP IRA, SIMPLE IRA and retirement plan accounts. Of course, you can choose to withdraw more than the minimum amount but it will reduce what you can claim in subsequent years.
The IRS defines the RMD as “the account balance as of the end of the immediately preceding calendar year divided by a distribution period from the IRS’s Uniform Lifetime Table.” For more information on how to calculate your unique RMD figure, the IRS has a series of worksheets to help with the process.
When should you take your first RMD?
Typically, retirees have to make the RMD once per year, but things are slightly different if you only recently turned 73. The first ‘year’ of the requirement is stretched through the following March, giving recipients 15 months to get their RMD sorted.
However while there is extra time, most experts recommend getting it completed within the first year. If not, you will have to make two RMDs in a single calendar year because the ‘year 2′ RMD will still be due by the end of the year. These withdrawals incur the regular income taxes so you would be doubling up on your tax liability.
If you bump up your adjusted gross income for a single year you risk triggering a raft of unwanted tax consequences. If you are in receipt of Medicare Part B or D, for example, you could find your premiums rising substantially if your income increases.
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