IRS Alert: Retirees Required to Withdraw Mandatory Distributions from IRAs and 401(k) Accounts by April 1
Some individuals may end up making two withdrawals this year, which could impact their tax obligations.
The U.S. Internal Revenue Service (IRS) has issued a notice reminding retirees that many of them are required to withdraw funds from their retirement accounts by the beginning of next month.
RMDs are “generally made by the end of the year. However, individuals who turn 73 in 2024 can postpone their initial RMD until April 1, 2025. This special provision is applicable to IRA owners and participants born after December 31, 1950.”
While the April 1 deadline applies to most participants in workplace retirement plans as well as all traditional IRA owners, the agency mentions that some individuals with workplace plans may have the option to delay their RMDs.
The IRS clarified that the April 1 deadline pertains only to the first year. Subsequent withdrawals must be completed by December 31 in all following years.
Related Stories
Consequently, taxpayers who withdraw their initial RMD for 2024 by April 1, 2025, will also need to take their 2025 distribution by December 31 of this year, resulting in two RMD withdrawals within the same year. Both amounts must be reported on the 2025 tax returns.
“This approach may be beneficial if you continue to receive a steady income, but for many, it is generally wiser to take the distribution by year-end instead of postponing until April 1.”
In subsequent years, the timing of RMD withdrawals will depend on personal preferences, including income needs and other considerations.
“Some individuals might prefer a lump-sum distribution at the beginning of the year to avoid thinking about it again until the next year. Others might find that regular withdrawals are the most straightforward way to meet their RMD obligations while managing their cash flow, particularly if those funds are needed for living expenses,” the firm stated.
“Exercise caution if you decide to wait until the year’s end to take your RMDs. It’s easy to inadvertently overlook them during the holiday season.”
Such waivers are granted “if the account owner demonstrates that the shortfall in distributions was due to a reasonable error and that appropriate steps are being taken to rectify the shortfall,” according to the IRS.
“To be eligible for this relief, one must file Form 5329 and include an explanatory letter.”
Starting in January 2024, individuals will be allowed to withdraw up to $1,000 each year to cover emergency expenses before hitting the age threshold.
This amount must be repaid within three years, and during this period, no additional withdrawals are permitted.
