IRS Reminds Individuals Over Age 72 to Withdraw from Traditional IRAs Before Dec. 31, 2022 to Avoid Penalties

Those federal employees and retirees who were born before January 1, 1951 and who own traditional IRAs are reminded that they must take their 2022 required minimum distribution (RMD) every year in order to avoid IRS penalties.

The deadline for receiving the first traditional IRA RMD is April 1 following the year a traditional IRA owner becomes age 72 and in all subsequent years, by December 31 of that year.

This column will discuss this year’s December 31,2022 traditional IRA RMD deadline and what affected federal employees and retirees need to do in order to make sure they will not be subject to any IRS penalties.

The following chart summarizes the rules regarding traditional IRA RMDs. Note that the RMD rules do not apply to Roth IRAs until the Roth IRA owner dies.

Uniform Lifetime Table ¹

(Table III of Appendix B in IRS Publication 590-B)

IRA RMD Worksheet for 2022

This worksheet is used to determine this year’s required withdrawal from their (non-inherited) traditional IRA, unless a spouse is the sole beneficiary of the owner’s IRA and the spouse is more than 10 years younger than the traditional IRA owner.

Note the deadline for receiving the traditional IRA RMD for the year 2022:

• If born anytime during 1950: April 1,2023, or
• If born before January 1, 1950: December 31, 2022

Step 1. IRA balance on December 31 of the previous year ¹

Step 2. Distribution period from the Uniform Lifetime Table (Table III of Appendix B in IRS Publication 590-B – reproduced below)

Step 3. Divide line 1 by line 2. This is the RMD for the year 2022 for this IRA, and

Step 4. Repeat steps 1 through 3 for each (non-inherited) traditional IRA owned.

1 A traditional IRA owner must increase their IRA balance by any outstanding rollover from a qualified retirement plan or another traditional IRA that was not in an IRA on December 31 of the previous year. An IRA balance must be increased by any recharacterized Roth IRA conversions that were not in any traditional IRA on December 31 of the previous year.

¹ Use this table to determine lifetime RMDs for:
· Unmarried owners.
· Married owners, unless spouse is (1) The sole beneficiary; and (2) more than 10 years younger than the owner. In that case, used the Joint Life and Last Survivor Expectancy Table from IRS Publication 590-B, Appendix B (https://www.irs.gov/pub/irs-pdf/p590b.pdf)

Note the following:

1. A federal retiree aged 72 and older who has a Thrift Savings Plan (TSP) account must take a RMD each year from his or her TSP account. If a federal employee has reached his or her required beginning date (age 70.5 if born before July 1, 1949; age 72 if born after June 30, 1949) but continues working in federal service, then the employee is not required to take a TSP RMD until April 1 following the year he or she retires from federal service. However, he or she still has to take his or her traditional IRA RMD each year even though still working.

2. While a traditional IRA owner born during 1950 has until April 1,2023 to take his or her first IRA RMD, the IRA owner is encouraged to take the first RMD before December 31, 2022. The reason: If the IRA owner waits until early 2023 to take the first IRA RMD for the year 2023, then the second RMD for the year 2023 will have to be made before December 31, 2023. The result would be two RMDs within one calendar year, resulting in more income and likely more federal and state income taxes.

The following examples illustrate traditional RMDs for the year 2022.

Example 1. Ken is a federal retiree who was born on March 12, 1950. He has two traditional IRAs: IRA A which currently has a balance of $276,000 and IRA B which currently has a balance of $84,000. Ken has a TSP account which has a balance of $948,500. Ken has to take his first RMD from both his traditional IRAs and from his TSP no later than April 1, 2023. He already has taken his TSP RMD which he did in early December 2022. He wants to take his traditional RMD by December 30,2022 in order to avoid having to take two traditional IRA RMDs during 2023. The calculation of Ken’s 2022 IRA RMD is calculated as follows:

The combined RMDs for Ken’s two IRAs is:

$10,675 plus $4,453 = $15,128

Ken decides to withdraw the $15,128 2022 IRA RMD from IRA A which he is allowed to do. His 2023 IRA RMD is due no later than December 31, 2023. His 2023 IRA RMD will be calculated based on his combined IRA A and IRA B balance of December 31, 2022, and a life expectancy (age 73) of 26.5 years.

Example 2. Marsha is a federal retiree who became age 75 during 2022. During 2019 she transferred her entire traditional TSP to a traditional IRA, IRA B. As of December 31,2021, IRA B was worth $850,500. On December 20, 2021 she requested a direct rollover of another IRA (IRA A) that she owned. The custodian of IRA A did perform a $75,000 IRA rollover (a check was mailed to IRA B). However, as of December 31,2021 the $75,000 rollover had not been processed by the custodian of IRA B. The $75,000 rollover check was actually deposited in Marsha’s IRA B on January 3, 2022. The calculation of Marsha’s’ 2022 IRA RMD is as follows:

Marsha must request and receive her 2022 IRA RMD of $37,622 no later than December 31, 2022.

Note that in any year in which a traditional IRA owner receives more than that year’s RMD, the excess amount cannot be applied towards the RMD in any future tax year.