 internal revenue service IRS tax news IRS reminder to many retirees April 1st is the last day to start taking money out of ira's and 401ks but first an attempt at a joke I apologize in advance most politicians feel when making decisions figuring gross profit is gross how dare you bring profits into this sacred discussion but somebody really ought to do it don't you think the unduanced discussion around things like climate change for example is counter productive to the goal it's like trying to help somebody who wants to reach the next closest galaxy by just giving them directions hmm how could we ever reach the canis major dwarf galaxy well my good man let me provide you with the directions you just make a left at the Sun and then go straight for 25,000 light years they can't miss it and it's like okay thank you but not helpful you see traveling 25,000 light years is kind of a problem at least if we want light years to continue representing how far light travels in a year how do politicians solve the problem of global warming or any problem for that matter by pretending real economic conditions don't exist and throwing something like 25 trillion dollars at it you see spending 25 trillion dollars is kind of a problem at least if we want the dollar to continue representing real economic value IR 2022-69 March 25th 2022 Washington the internal revenue service today reminded retirees who turned 72 during the last half of 2021 that in most cases Friday April 1st 2022 is the last day to begin receiving payments from individual retirement arrangements ira's 401ks and similar workplace retirement plans the payment called minimum distributions RMD's are normally made by the end of the year so just a quick recap on how this all works here we're talking about retirement types of plans like an IRA like a 401k the 401ks are the types of retirement plans you might have if you work as a W2 employee you might have like a 403b if you're government employee or something like that or you might have say an IRA if you didn't get it through work and all of those types of things are tax incentives to be saving for retirement basically putting the money under in essence an umbrella under these retirement plans where when you put the money in you get the benefit if it's a 401k plan that means that they don't include it in income unlike line one of your W2 so it's not going to be taxed there so you get the tax benefit when you put it in if it's an IRA then you get the benefit as like an adjustment to income or for adjusted gross income and above the line type of deduction that's why you put it into those accounts and then you're deferring the the benefit that you're going to get or you're deferring the taxes you're going to pay I should say you're getting the benefit upfront and you're deferring the taxes that you're going to pay when you pull the money out then the IRS is going to represent it as income now the IRS is going to say well you can't just keep it in there forever and indefinitely we want you to pull it out at some point in time so they're going to say once you reach the age where you have to pull it out we're going to make you pull it out so that you're going to pull it out and then you're going to be paying the taxes on the items that you're pulling out so that's why it's going to be a required minimum distribution now just a quick note that when you're putting money into a retirement plan you're really usually putting it into something just normal investments like stocks and bonds so so there's nothing like special about a 401k or an IRA in terms of the things that you were investing in because if there was no 401k or IRA we could still invest in mutual funds and index funds and stocks and bonds but we put it under the umbrella of these things because we're getting the tax benefit to do so and they're actually restricting our money because we can't take it out if we took it out under any conditions under what we're allowed to take it out after retirement age or some other circumstance we get penalized on it so we put the money in because we get this big tax benefit and then we've got the money restricted and then they force us to take the money out so that we have to actually pay the tax at some point in time and that's what we're talking about here the point of retirement when they're saying now you have to pull the money out because we want some of it and if you don't there could be some severe penalties here so so but anyone who reached age 72 after June 30th 2021 is covered by a special rule that allows IRA account owners and participants in workplace retirement plans to wait and until as late as April 1st 2022 so they have the special kind of delayed date so you want to be talking to your brokers and making sure that you have the retirement distributions worked out and planned out in a way that you're in compliance with the law so that's what they pushed it out to you to take their first R&D requirement minimum distribution so in other words in general the special April 1st rule applies to IRA owners and other participants in these plans who were born after June 30th 1949 two payments in the same year the April 1st R&D required minimum distribution deadline only applies to required distributions for the first year for all later years the R&D required minimum distributions must be made by December 31st which is kind of like the general rule you got to have the distribution in the year normally unless you fall under this special condition this means the taxpayers who turned 72 after June 30th 2021 and received their first required minimum district required distribution for 2021 in 2022 on or before April 1st must receive their second R&D for 2022 by December 31st 2022 even though the first distribution is actually required 2021 distribution it's taxable in 2022 and reported on the 2022 tax return along with the regular 2022 distributions so now you've got this cutoff problem of when the distribution was made in terms of the year it's applied to and the year that you have to basically record it in income and be paying the taxes on it so types of retirement plans requiring R&D and by the way hopefully if you're working this out with your broker then then you're going to get the required minimum distributions that are lined up properly so that you're in alignment with the law and then of course when they issue the 1099s and so on for the distributions that will all be done by them and that'll make it easier for you to basically fill out the tax return so hopefully it'll be fairly straightforward even though the cutoff dates are kind of confusing due to the fact that the if you're discussing this with the brokers they should be able to to get the paperwork lined up so tax types of retirement plans require R&Ds these required distribution rules apply to owners of traditional SEP SEP and simple simple IRAs while the original owner is alive they also apply to participants in various workplace retirement plans including the good old 401k the 403b and the 457b plans RMDs don't apply to Roth IRAs so Roth IRAs are going to be the inverse of the normal kind of plan so so they have different kind of restriction different rules the iris isn't concerned so much with you pulling the money out of a Roth because the Roth was inverted and you basically pull the money out when you pay taxes when you put the money into the plan so they don't have that same kind of tax motive for the iris to say hey we want you we require you to pull it out that's why it would be nice in retirement plans or in retirement if you had some money and like a normal retirement and some money in like a Roth or possibly in just outside of a retirement plan so that so that you can spend you know the money that you would like to spend during retirement without taking it all out of a of a taxable plan so that possibly your income could be lower and you pay less taxes in that event in any case an ira trustee must either report the amount of the RMD to the IRA owner or offer to calculate it often the trustee shows the RMD amount on form 5498 inbox 12b for 2021 RMD required by April 1st 2022 the RMD amount is shown on the 2020 form 5498 normally issued to the owner during the first part of 2021 some can delay RMD so can you delay the RMD though the April 1st deadline is mandatory for all owners of traditional iras and most participants in workplace retirement plans some people with workplace plans can wait longer to receive the RMD most participants and why would you want to do that by the way if you already have money that you're spending right now and you don't need the RMD to be taken out then you might want to keep it in there because you don't want to be recognizing the income when you pull the money out which is what's going to happen that's why they're forcing you to pull the money out so that you have to recognize the income and pay taxes on it so most participants who are still working for the employer can wait until April 1st of the year after they retire to start receiving these distributions if their workplace plan allows this RMD exception does not apply to five percent owner of the business sponsoring the retirement plan or the participants in SEP and SIPL IRA plans see tax on excess accumulation in publication 575 for details there's a link to that here employees of public schools and certain tax exempt organizations with 403 b plan accruals before 1987 should check with their employer plan administrator or provider to see how to treat these accruals irs online tools and publications can help many answers to questions about RMDs can be found on RMDs FAQs there's a link to that here it's on irs.gov irs.gov gov that's my new thing for it by the way in any case most taxpayers use table three uniform lifetime to figure the RMD married taxpayers whose spouse is more than 10 years younger and is there only beneficiary use table two because this and other life expectancy tables were updated for 2022 recipients need to use a different version of this table to figure their 2021 RMD compared to their 2022 RMD the required withdrawals in 2022 and future years will generally be smaller for a 2021 RMD do April 1st 2022 use the life expectancy tables in appendix b of publication 590 b there's a link to that here used for preparing 2020 returns as shown in table three the RMD for a person age 72 in 2021 will normally be based on the distribution period of 25.6 years so just to kind of break this down obviously you'd want to talk to your broker about this to help figure and think about what your minimum distribution is and how do they basically figure what the minimum distribution is they look at an actuarial table meaning what's the life expectancy at this point in time and then the iris is coming up with some kind of figure in terms of how much they want to force you to take out of the plan before you're expected to die so that you could pay taxes on it and that's and so that's why you got to use these tables and whatnot which are life expectancy table calculations involved in it and so on and so forth so you got to use these tables to figure out what the distribution would be so divide the December 31st 2020 balance by 25.6 to get the RMD for 2021 so for 2022 RMD due December 31st 2022 use the revised life expectancy tables in appendix b of publication 590 b used for preparing 2021 returns as shown in the revised table three the RMD for a person age 72 in 2022 will normally be based on a distribution period of 27.4 years divide the December 31st 2021 balance by 27.4 to get the RMD for 2022 publication 590 b has worksheets examples and other information that could help anyone figure their RMD visit irs.gov.gov.gov v for victory over your tax research and tax planning foot but you can visit the iris website for more information there's links to that stuff here there'll be a link to this in the 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