Avoid Penalties: IRS Urges Individuals Over 72 to Initiate Withdrawals from IRAs and Retirement Plans

IRS reminds those over age 72 to start withdrawals from IRAs and retirement plans to avoid penalties The Internal Revenue Service today reminded those who were born in 1950 or earlier that funds in their retirement plans and individual retirement arrangements face important upcoming deadlines for required minimum distributions to avoid penalties. Required minimum distributions, or RMDs, are minimum amounts that many retirement plan and IRA account owners must generally withdraw annually after they reach age 72. Account owners can delay taking their first RMD until April 1 following the later of the calendar year they reach age 72 or, in a workplace retirement plan, retire. RMDs are taxable income and may be subject to penalities if not timely taken. IRAs: The RMD rules require traditional IRA, and SEP, SARSEP, and SIMPLE IRA account holders to begin taking distributions at age 72, even if they're still working. Account holders reaching age 72 in 2022 must take their first RMD by April 1, 2023, and the second RMD by December 31, 2023, and each year thereafter. Retirement Plans: In 401(k), 403(b) and 457(b) plans; profit-sharing and other defined contribution plans; and defined benefit plans, the first RMD is due by April 1 of the later of the year they reach age 72, or the participant is no longer employed (if allowed by the plan). A 5% owner of the employer must begin taking RMDs at age 72. RMDs may not be rolled over to another IRA or retirement plan. See the RMD Comparison Chart that highlights some of the basic RMD rules that apply to IRAs and defined contribution plans. Roth IRAs do not require distributions while the original owner is alive. RMD Calculations and 50% tax on missed distributions An IRA trustee, or plan administrator, must either report the amount of the RMD to the IRA owner or offer to calculate it. An IRA owner, or trustee, must calculate the RMD separately for each IRA owned. They may be able to withdraw the total amount from one or more of the IRAs. However, RMDs from workplace retirement plans must be taken separately from each plan. Not taking a required distribution, or not withdrawing enough, could mean a 50% excise tax on the amount not distributed. The IRS has worksheets to calculate the RMD and payout periods. Inherited IRAs An RMD may be required for an IRA, retirement plan account or Roth IRA inherited from the original owner. Retirement Topics - Beneficiary has information on taking RMDs from an inherited IRA or retirement account and reporting taxable distributions as part of gross income. Publication 559, Survivors, Executors and Administrators, can help those in charge of the estate complete and file federal income tax returns, and explains their responsibility to pay any taxes due on behalf of the decedent or person who has died. 2020 coronavirus-related distribution Since 2020 RMDs were waived, an account owner or beneficiary who received an RMD in 2020 had the option of returning it to their IRA or other qualified plan to avoid paying taxes on that distribution. A 2020 RMD that qualified as a coronavirus-related distribution may be repaid over a 3-year period or have the taxes due on the distribution spread over three years. A 2020 withdrawal from an inherited IRA could not be repaid to the inherited IRA but may be spread over three years for income inclusion. For more information see the Coronavirus Relief for Retirement Plans and IRAs page. Taxpayers can find forms, instructions, publications, Frequently Asked Questions regarding Required Minimum Distributions and other easy-to-use tools at IRS.gov....(read more)

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IRS Reminds Those Over Age 72 to Start Withdrawals from IRAs and Retirement Plans to Avoid Penalties As retirement age approaches, it becomes crucial to plan for financial stability during the golden years. Among the many considerations, understanding the rules and deadlines associated with Individual Retirement Accounts (IRAs) and other retirement plans is essential. In this vein, the Internal Revenue Service (IRS) has once again reminded individuals over the age of 72 to initiate timely withdrawals to avoid any unnecessary penalties. Once you reach the age of 72, the IRS mandates that you begin withdrawing a minimum amount annually from your traditional IRA or any employer-sponsored retirement plan. This distribution is known as a Required Minimum Distribution (RMD), and it is calculated based on a formula that considers your age and the account balance. The deadline for your first RMD is typically April 1st of the year following the year you turn 72. However, to avoid any potential confusion or penalties, it is advisable to take your first RMD before the end of the year you turn 72. Subsequently, all subsequent RMDs should be withdrawn by December 31st each year. It is important to note that not all retirement accounts require RMDs. Roth IRAs, for instance, do not require withdrawals during the owner's lifetime. Additionally, those who are still working and have a 401(k) or other employer-sponsored retirement plan may have the option to delay their RMDs if they are still employed and not a 5% or more owner of the company. Failing to take the required distributions on time can lead to hefty IRS penalties. The penalty amount for not withdrawing the full RMD is 50% of the amount that should have been withdrawn. Therefore, it is crucial to understand and comply with the RMD rules to avoid any unnecessary financial setbacks. To determine the RMD amount, you have the option to use either the Uniform Lifetime Table or the Joint and Last Survivor Table, depending on your marital status and whether your spouse is more than ten years younger than you. These tables provide the factors to calculate the exact RMD amount. It is highly recommended to consult with a qualified financial advisor or tax professional to better understand your specific RMD obligations. They can help guide you through the process, ensuring you remain compliant with the IRS regulations and avoid any penalties. In conclusion, the IRS reminds individuals over the age of 72 about their obligation to start withdrawing funds from traditional IRAs and retirement plans by the designated deadlines, through Required Minimum Distributions (RMDs). Understanding the rules and adhering to them is vital to avoid penalties. Seeking expert advice can prove invaluable in navigating these regulations and ensuring a secure financial future during retirement. https://inflationprotection.org/avoid-penalties-irs-urges-individuals-over-72-to-initiate-withdrawals-from-iras-and-retirement-plans/?feed_id=139350&_unique_id=6510775402930 #Inflation #Retirement #GoldIRA #Wealth #Investing #financial #IncomeTaxNews #InternalRevenueServiceNEws #IRSNews #IRSremindsthoseoverage72tostartwithdrawalsfromIRAsandretirementplanstoavoidpenalties #TaxNews #InheritedIRA #financial #IncomeTaxNews #InternalRevenueServiceNEws #IRSNews #IRSremindsthoseoverage72tostartwithdrawalsfromIRAsandretirementplanstoavoidpenalties #TaxNews