2022 Year-End Tax Planning: Don’t Forget About Your RMD!

Posted on November 30, 2022 in Tax Topics For Individuals

Have you taken the required minimum distribution from your retirement plan this year? The rules have recently changed, so here’s an overview of the current RMD rules.

Required Minimum Distribution (RMD) Rules

If you will be at least 72 years old by the end of 2022, you are required to take a distribution from your retirement plan. If you turned 72 in 2022, you have until April 1, 2023 to take your distribution. Those over that age have only until December 31, 2022. If your due date is April 1, 2023, you may want to take your distribution in 2022 anyway so you don’t pay tax on two distributions next year.

The RMD rules apply to traditional IRA’s, 401(k) plans, 403(b) plans and other defined contribution plans. Non-inherited Roth IRA’s are not subject to these rules. In addition, if you are 72 or over and still working, you generally don’t have to take a distribution from your employer’s retirement plan.

The amount of the distribution for all except inherited IRA’s is calculated by taking the account balance as of December 31, 2021 and dividing by the factor shown on a table the IRS provides. If you have multiple accounts, you must make the calculation for each account. However, you can pick and choose which IRA account to use to withdraw your IRA distributions. For other plans, like 401(k) and 403(b) plans, you must take the calculated distribution from each account.

Qualified Charitable Distribution

You can avoid taxation on your IRA distribution by making a qualified charitable distribution (QCD). This is available to anyone at least 70.5 years old. The distribution must be made directly from the IRA to the charity and is capped at $100,000. The contribution isn’t deductible, but it does reduce the amount of RMD you have to include in federal and Indiana taxable income dollar-for-dollar. This can help keep your Medicare premiums down as well as other items based on adjusted gross income.

Make sure you allow enough time for your plan custodian to process your RMD or QCD in 2022. There is a 50% penalty for not taking your distribution timely.