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

If you turned 72 in 2022, the last chance to withdraw your first compulsory pension scheme is on 1 April – otherwise you could risk a big tax penalty.

Generally, you must begin these annual withdrawals, known as required minimum distributions or RMDs, at a certain age. Before 2020, RMDs started at age 70½, and the Secure Act of 2019 increased the starting age to 72. In 2022, Secure 2.0 raised the age to 73, which starts in 2023.

While the annual deadline for RMDs is December 31st, there is a special exception for the first year that moves the due date to April 1st.

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

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

RMDs apply to both pre-tax and Roth 401(k)s and other workplace plans, along with most individual retirement accounts. There are no RMDs for Roth IRAs until after the death of the account owner.

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

If you skip your RMD or don’t withdraw enough, there is a 25% penalty applied to the amount you should have withdrawn. Secure 2.0 lowered the penalty to 25% from 50% starting in 2023, with the option to reduce it further to 10% if you take your missed RMD during the “correction window.”

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

“I’ve had clients in the past miss RMDs, and I was able to correct it in those cases by taking the RMD as soon as possible,” he said, which included completing Form 5329 for the year for the missed the RMD, and said “reasonable cause” on the penalty line, write a letter of explanation and send both documents to the IRS.

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

If you defer your first RMD until April, the second still has to be paid by Dec. 31, doubling the RMD income for the year, Gagliardi said.

“If it’s a small amount, it doesn’t mean that much to their tax situation,” he said. “But if they have large tax-deferred accounts, the double hit in one year may well push them into a different tax bracket,” resulting in tax issues like higher Medicare premiums or making it harder to deduct medical expenses.

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