The deadline for the minimum distributions required for the first year is April 1

If you turned 72 in 2022, the last chance for your first mandatory retirement plan withdrawal is April 1 – or you could face a hefty tax penalty.

Generally, you must begin these annual withdrawals, known as required minimum distributions, or RMDs, at a specific age. Prior to 2020, RMDs started at age 70.5 and the 2019 Secure Act increased the start age to 72. In 2022, Secure 2.0 raised the age to 73, which starts in 2023.

Although the annual deadline for RMDs is December 31, there is a special exception for the first year, which extends the due date to April 1.

Brett Koeppel, certified financial planner and founder of Eudaimonia Wealth in Buffalo, New York, said Secure 2.0 has added to the confusion about who should withdraw money from retirement accounts and when.

Although Secure 2.0 has raised the start age for RMDs to 73 from 2023, retirees who turn 72 in 2022 must still withdraw the funds by April 1 to avoid a “very severe” penalty. Koeppel said.

RMDs apply to both pre-tax and Roth 401(k) and other corporate plans, as well as most individual retirement accounts. There is no RMD for Roth IRAs prior to the death of the account holder.

The amount you must withdraw each year for RMDs is usually calculated by dividing each account’s previous December 31 balance by a “distribution period” published annually by the IRS.

If you skip your RMD or don’t withdraw enough, there is a 25% penalty, levied on the amount you should have withdrawn. Secure 2.0 has dropped the penalty from 50% to 25% from 2023, with the option to reduce it further to 10% if you take your missed RMD during the ‘correction window’.

The correction window is usually the end of the second tax year following the year of the missed RMD, explained George Gagliardi, CFP and founder of Coromandel Wealth Management in Lexington, Massachusetts.

“I’ve had clients who have missed RMDs in the past, and I was able to resolve the issue in those cases by taking the RMD as soon as possible,” he said, which included filling out the form 5329 for the year of the missed RMD, putting “reasonable cause” on the penalty line, writing a letter of explanation, and sending both documents to the IRS.

“In the past, the IRS was lenient with missed RMDs, but with the new reduced penalties, they may become more aggressive,” he said. “We’ll see how it goes over time.”

If you delay your first RMD until April, the second is still due by December 31, which doubles the RMD income for the year, Gagliardi said.

“If it’s a small amount, it won’t matter much to their tax situation,” he said. “But if they have large tax-deferred accounts, that double hit in a year might just push them into another tax bracket,” leading to tax issues like higher health insurance premiums or making it more difficult to deduct medical expenses.

Gagliardi said he never recommends waiting until April 1 to start first-year RMDs “unless your income and tax situation warrants it.”