Retirees Must Make Obligated Withdrawals From IRAs, 401(k) Accounts by April 1: IRS

Some people could end up making two withdrawals this year, which can affect their taxes.

The Internal Revenue Service (IRS) in Washington on Jan. 9, 2025. Madalina Vasiliu/The Epoch Times

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.

“Some may choose to take a lump-sum distribution at the beginning of the year so they don’t have to think about it again until the following year. Others might find that taking regular withdrawals is the simplest way to meet their RMD requirements and manage their cash flow, especially if you need the funds to cover living expenses,” the company said.

“Be careful should you plan on waiting to take RMDs until the end of the year. You don’t want to accidentally forget about them during the holidays.”

People who do not take their full RMDs by the required due date face a 25 percent excise tax. In some cases, the penalties could be waived.

Such waivers are issued “if the account owner establishes that the shortfall in distributions was due to reasonable error and that reasonable steps are being taken to remedy the shortfall,” the IRS said.

“In order to qualify for this relief, you must file Form 5329 and attach a letter of explanation.”

In addition, there are limits to withdrawing from retirement accounts prior to the age of 59½. Before January 2024, those who did this were subject to a 10 percent early withdrawal penalty.

Beginning January 2024, individuals are allowed to take out up to $1,000 per year to meet emergency expenses before reaching the age threshold.

The amount must be repaid within three years, prior to which no further withdrawals are allowed.