Retirees Face 25% Tax Penalty if They Miss April 1 Deadline

If you turned 73 in 2024, your deadline for taking your first required minimum distribution (RMD) is April 1. Failing to take the RMD or withdrawing too little could result in a 25% penalty, though you may have options to reduce the fee.

If you turn 73 in 2024, the deadline for your first required retirement plan withdrawal is approaching—and failing to meet it could result in a significant IRS tax penalty.

Most retirees must begin taking required minimum distributions (RMDs) at age 73. These mandatory withdrawals apply to pre-tax retirement accounts, such as traditional IRAs and workplace plans like 401(k)s. However, Roth accounts are exempt from RMDs during the account holder’s lifetime and only become subject to them after their death.

The deadline for required minimum distributions (RMDs) is December 31 each year. However, for the first withdrawal, retirees have until April 1 of the year following the year they turn 73.

You could face a 25% penalty

To calculate required minimum distributions (RMDs), you generally divide the account’s prior December 31 balance by the IRS-defined “life expectancy factor.” While some companies handle these calculations, it’s ultimately your responsibility to withdraw the correct amount.

Failing to take the RMD or withdrawing too little can result in a 25% penalty, according to certified financial planner Scott Bishop, partner and managing director at Presidio Wealth Partners in Houston. However, the IRS may reduce this penalty to 10% if you correct the mistake by withdrawing the proper amount within two years and filing Form 5329.

“If you miss the required minimum distribution (RMD), take responsibility for it,” Bishop advised. “Ensure you address it promptly.”

In certain situations, the IRS may waive the penalty if you can demonstrate that the mistake was due to a “reasonable error” and that you are taking “reasonable steps” to correct it, according to the agency

Why you should take your first RMD sooner

Retirees must take their first required minimum distribution (RMD) by April 1 of the year after they turn 73. However, many financial advisors recommend withdrawing the funds by December 31 of the prior year.

“I almost always advise taking it in the first year,” said George Gagliardi, a certified financial planner and founder of Coromandel Wealth Management in Lexington, Massachusetts.

Delaying the first RMD until April 1 means you’ll also need to take the second RMD by December 31 of that same year. Since pre-tax withdrawals are subject to regular income taxes, this could result in a higher taxable income for the year, Gagliardi explained.

A higher adjusted gross income may lead to additional tax implications, such as increased Medicare Part B and D premiums.

However, in some cases, postponing the first RMD until April 1 may be beneficial. For instance, if the year you turn 73 is a high-income year due to capital gains or other one-time events, delaying the RMD could help manage your tax burden, Gagliardi noted.