When Must You Start Taking Retirement Plan Distributions?

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When Must You Start Taking Retirement Plan Distributions?

The Secure 2.0 Act, passed in late 2022, made some changes to retirement plan distribution requirements, many of which took effect in 2023, and many of which take effect in 2024 or later years.

You can take out any amount at any time from your retirement plan without facing an early withdrawal penalty once you have reached age 59½, but you must begin withdrawing minimum annual amounts from your plan once you reach age 73. Prior to the new law, the age was 72.

If you fail to take out the required minimums

If you fail to take out the required minimums, you may face a 25% excess accumulation tax, though the new law lowers this penalty to 10% if your failure is corrected in a timely manner. Prior to 2023, the tax was a whopping 50%. The Internal Revenue Service imposes the tax on any part of the annual minimum distribution that you fail to take.

If you are still working at age 73, however, you can delay beginning your required minimum distributions until you retire—with two exceptions: 1) if you own at least 5 percent of the company you work for or 2) if your plan is an IRA, you must begin making regular distributions even if you are still working.

When is your required beginning date?

Your required beginning date is the deadline to begin taking distributions from your plan. If your plan is an employer plan, you have two possibilities: your deadline is April 1 of the year following the later of either:

• The year you attain age 73 or
• The year you retire

For example, if you retired at age 68 and reached age 73 any time during the year 2024, your required beginning date would be April 1, 2025. Beginning the second year after you turn 73 (or after your beginning date, if it’s later), you must take your required distribution during the calendar year—in other words, from January 1 through December 31. You may not wait until April 1 of the following year to take the distribution.

Special rules

There also are a few other special rules. For example, people participating in a government or church plan also may be able to delay their required beginning date. If you have specific questions in this area, you may want to consult a plan or tax advisor.

Consider timing

You also need to carefully consider the timing of your first year’s payments in light of possible tax consequences down the road. What does this mean? Consider the following example. Eleanor turned age 73 in 2023 and delayed taking her first required distribution until March 2024. That same year, her second year after turning 73, she had to take another required distribution before December 31. The result? Taking two distributions in the same year pushed Eleanor into a higher income tax bracket.

This is a complex topic with many nuances, and one you may want to review periodically as you either approach retirement or move beyond that milestone.

The IRS will publish clarifications of these and other retirement-related issues during this year and following years.