Last chance for some retirees to avoid a 50% RMD penalty is April 1

If you turned age 72 during the second half of 2021, the deadline for your first annual required withdrawal from retirement accounts is April 1. In many cases, it’s the last chance to avoid a hefty penalty.

These required minimum distributions, known as RMDs, apply to both traditional and Roth 401(k) plans, 403(b) plans and other workplace plans, along with most individual retirement accounts. There are no RMDs for Roth IRAs until after the account holder dies.

Before 2020, RMDs started at age 70½, but if you were born on July 1, 1949, or later, you can now wait until age 72.

Typically, you can calculate RMDs by dividing your end-of-year account balance by a “life expectancy factor” provided by the IRS, and you must do this for each eligible account.

For example, if your 401(k) balance is $1 million and your life expectancy factor is 24.6, you must withdraw roughly $40,650 by the deadline to avoid a penalty.

Generally, you must take RMDs by Dec. 31, but there’s a one-time extension until April 1 for the first withdrawal if you were born after June 30, 1949.

However, if you wait until April 1 for the first RMD, you’ll have to take two in 2022 — your 2021 RMD by April 1 and your 2022 RMD by Dec. 31.

And it’s easy to miss that second withdrawal, according to certified financial planner Brandon Opre, founder of TrustTree Financial in Huntersville, North Carolina.

“I usually recommend that clients take the combined RMD now to avoid confusion later, as well as the potential to forget to take it,” he said.

Moreover, the IRS updated its life expectancy tables for 2022, which means you’ll need to use the old table for 2021 (listed here) and the new one for 2022 (included here), according to the agency.

The penalty for missing either RMD is 50% of the amount you needed to withdraw by the deadline.