Some people could end up making two withdrawals this year, which can affect their taxes.
The U.S. Internal Revenue Service (IRS) issued an alert reminding retirees that some of them are obligated to withdraw money from their retirement accounts by the beginning of next month.
“In most cases, retirees who turned 73 in 2024 must begin receiving payments from Individual Retirement Arrangements (IRAs), 401(k)s, and similar workplace retirement plans by Tuesday, April 1, 2025,” the agency said in a March 13 statement.
Such payments, known as Required Minimum Distributions (RMDs), are the amount that individuals with retirement accounts are mandated to withdraw every year. Failure to do so may be subject to penalties.
RMDs are “typically made by year-end. However, individuals who turned 73 in 2024 can delay their first RMD until April 1, 2025. This special rule applies to IRA owners and participants born after Dec. 31, 1950.”
While the April 1 deadline applies to most workplace retirement plan participants and all traditional IRA owners, some people with workplace plans are able to delay their RMDs, the agency said.
The IRS clarified that the April 1 deadline applies only to the first year. Withdrawals must be made by Dec. 1 for all subsequent years.
As such, taxpayers who take their first RMD for 2024 by April 1, 2025, will also have to take their 2025 distribution by Dec. 31 this year, resulting in two RMD withdrawals in a single year. Both amounts are to be reported in the 2025 tax returns.
However, taking two distributions in a single year poses negative consequences in terms of taxes, according to a Dec. 13 post from investment services company Charles Schwab. Such a move “could significantly increase your taxable income,” it said.
“This strategy may make sense if you’re still bringing in steady income, but for most people, it’s usually better to take the distribution by the end of the year rather than wait until April 1.”
For subsequent years, the timing of RMD withdrawal would depend on personal preferences such as income requirements and other matters.
