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

If you turn 72 in 2022, the last chance to withdraw your first mandatory retirement plan is April 1—or you could face a heavy tax penalty.

Generally, these annual withdrawals, known as required minimum distributions, or RMDs, must begin by a certain age. Prior to 2020, RMD applications began at age 70½, and the Secure Act of 2019 increased the starting age to 72. And in 2022, Secure 2.0 raises the age to 73 years, which starts in 2023.

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

Secure 2.0 has added to the confusion about who needs to withdraw money from retirement accounts and when, said Brett Koppel, a certified financial planner and founder of Eudaimonia Wealth in Buffalo, New York.

Although Secure 2.0 raised the starting age for RMDs to 73 as of 2023, retirees who turn 72 in 2022 must still withdraw funds by April 1 to avoid an “extremely severe” penalty, Koeppel said.

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

The amount you need to withdraw annually for RMDs is usually calculated by dividing each account’s preceding December 31 balance by the Distribution Period. Published annually from the IRS.

If you go over your RMD or don’t take out enough, there is a 25% penalty, charged on the amount you should have withdrawn. Secure 2.0 dropped the penalty to 25% from 50% starting in 2023, with the potential to reduce it further to 10% if you take the missing RMD during the “correction window.”

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

“I’ve had clients miss RMDs in the past, and I’ve been able to fix it in those cases by taking an RMD as soon as possible,” he said, which included filling out Fig. 5329 For a missed year of RMD, put “reasonable cause” on the penalty line, write a letter of explanation and mail both documents to the IRS.

“In the past, the IRS was lax about missed RMD cases, but with new, reduced penalties, it may become more aggressive,” he said. “We’ll see how this turns out over time.”

If you delay your first RMD until April, Gagliardi said, the second will still be due by December 31, doubling the RMD’s income for the year.

“If it’s a small amount, it won’t have much of an impact on their tax situation,” he said. “But if they have large tax-deferred accounts, that double whammy in one year can push them into another tax bracket,” leading to tax issues like higher Medicare premiums or making it difficult to deduct medical expenses.

Gagliardi said he never recommends waiting until April 1 to start the first year of RMDs “unless your income and tax situation merit it.”