Bloomberg Tax
Dec. 15, 2022, 9:45 AM

IRS Issues Reminder on Mandatory Retirement Plan Withdrawals

Kelly Phillips Erb
Kelly Phillips Erb

With year-end just around the corner, the IRS is reminding taxpayers to be aware of upcoming deadlines for required minimum distributions. The deadline for most withdrawals is Dec. 31, 2022.

Your goal when setting up a retirement account is generally to minimize the tax consequences and maximize returns. With traditional plans, that typically means socking money away and deferring income tax as long as possible. Of course, nothing lasts forever—not even tax deferrals. By rule, most taxpayers must start taking withdrawals from a traditional IRA, SIMPLE IRA, SEP IRA, or retirement plan account beginning no later than age 72. Those mandatory withdrawals are called required minimum distributions.

RMD Calculations

The rules for calculating your RMD can be tricky, but the general rule is this: Take the account balance as of the end of the immediately preceding calendar year and divide it by a number of years typically based on your life expectancy. That sounds easy, right? But your life expectancy changes every year. Let’s assume your life expectancy is 76—that’s the average US life expectancy.

If you’re 25, it means that theoretically, you have 51 more years to go. But the closer you get to your life expectancy date, the longer you’re expected to live. Once you reach age 76, for example, your life expectancy would rise closer to 88. The IRS uniform life expectancy tables consider this; they actually go up to 115 and over.

And while RMDs are typically figured using the uniform life expectancy tables, if the sole beneficiary of an account is a spouse who is more than 10 years younger, the spouse can use a different table—the Joint Life Expectancy Table—which will result in a smaller RMD.

Whatever that number looks like—your account divided by your life expectancy factor—is your RMD. You can take out more if you want, but you must take at least that much each year. If you don’t take your RMD or don’t take enough by the deadline (Dec. 31 of each year for most taxpayers), you will be subject to a penalty.

RMD Quirks

Since this is tax law, there are some quirks. For example, traditional IRA and SEP, SARSEP, and SIMPLE IRA account holders must begin taking distributions at age 72, even if they’re still working. And those account holders who reach age 72 in 2022 must take their first RMD by April 1, 2023. They would take their second RMD by year-end, Dec. 31, 2023. (Yes, that means two in one year.)

For those with other retirement plans, including profit-sharing and other defined contribution plans, 401(k), 403(b), and 457(b) plans, and defined benefit plans, the first RMD must be withdrawn by April 1 of the later of the year they reach age 72 or the participant is no longer working, if allowed by the plan. Other exceptions may apply.

Making a Withdrawal

How do you make an RMD? Hopefully, you’re working with a financial or other adviser who can make it seamless. Setting up a recurring RMD means fewer opportunities for mistakes. But if you want to take it out yourself each year, you can transfer money out of your account online or write a check. You can also transfer assets in kind—you don’t have to sell stock or other investments to have them qualify as an RMD.

The critical part to remember is that, for purposes of the rule, you must take your RMD out of your retirement plan and into a non-retirement account. You cannot roll over your RMD to another IRA or retirement plan. However, once you’ve made a withdrawal, you don’t have to spend it. You can re-invest it, including contributing to a traditional or Roth IRA if you otherwise qualify.

And while you can take your entire RMD from one account, you must calculate the RMD separately for each IRA. In contrast, RMDs from workplace retirement plans must be taken separately from each plan.

Tax Consequences

Withdrawals are taxable. That means they will be included in your taxable income, except for any part that was taxed earlier. Additionally, you won’t pay tax on money that can be received tax-free, like qualified distributions from designated Roth accounts.

And what about Roths? You don’t have mandatory RMDs until after the owner’s death, and Roth IRA beneficiaries are subject to the RMD rules.

Recent Changes

There were some changes during the pandemic that allowed taxpayers to waive RMD payments for 2020. Those rules do not apply to 2022. However, if you took advantage of the opportunity to repay any withdrawals or pay the taxes over a three-year period, you may need to check with your advisers to find out what steps to take by the end of 2022.

Another significant change to note? While RMD may be required for beneficiaries—that’s always been true—stretch IRAs are restricted to eligible designated beneficiaries. That means most non-spousal beneficiaries must empty an inherited IRA by the end of the 10th year after the original account owner’s death. In other words, RMDs must be taken for those beneficiaries over 10 years and not calculated using life expectancy. The timing and wording of that new law, passed in 2019, caused some confusion for 2022.

Earlier this year, the IRS issued Notice 2022-53, which makes clear that the IRS intends to issue final regulations related to RMDs that will apply no earlier than the 2023 distribution calendar year, and provided guidance related to certain provisions that apply for 2021 and 2022. The notice clarified that, to the extent a taxpayer did not take a specified RMD related to this rule, the IRS will not impose a penalty. If a taxpayer has already paid the excise tax for a missed related RMD, the taxpayer can request a refund. If you inherited an IRA in the past three years, be sure to comply with the new laws.

There’s a possibility for more change. Earlier this year, the House passed an additional retirement savings bill, Securing a Strong Retirement Act of 2022, touted as SECURE Act 2.0. The House version of the bill would automatically enroll employees into 401(k) or 403(b) plans, though you would be able to opt out. It also would boost catch-up contribution limits for employees who are ages 62 to 64. And notably, it would delay RMDs to age 75 by 2032.

What to Remember

Retirement plan rules are some of the most complicated in our tax code. While retirement plans can provide security for taxpayers in their golden years, they can also result in penalties and confusion if you don’t follow the rules. Your best bet, as always, is to consult with your advisers to avoid any headaches down the road.

This is a regular column from Kelly Phillips Erb, the Taxgirl. Erb offers commentary on the latest in tax news, tax law, and tax policy. Look for Erb’s column every week from Bloomberg Tax and follow her on Twitter at @taxgirl or Mastodon at

To contact the reporter on this story: Kelly Phillips Erb in Washington at

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