Year-End Financial To-Do: One Week Remains for 2022 RMDs and QCDs

Dec 22, 2022

By Theresa Cagle Fry, Senior Vice President and Manager IRAs, Retirement & Education Planning
Print This Post Print This Post

Here we are again counting down to the last few days of the year. With the holidays and time spent with loved ones, before we know it, we will be in a new year.  If you tend to put off things you don’t like to do until the last minute, your time has come.  And if you have retirement account assets, like IRAs or 401(k)s and you are age 72 or older, or inherited a retirement account, required minimum distributions (RMDs) for 2022 must be taken by Friday, December 30 this year since December 31 is a Saturday.

Failure to take an RMD can result in an IRS 50% tax penalty.  The penalty applies on the amount of the shortfall.  For example, if your RMD this year is $8,000 and you only distribute $6,000, you will be $2,000 short.  That would result in a $1,000 tax penalty unless you can demonstrate there were extraordinary circumstances that prevented you from taking the remaining $2,000.

If you are not sure if RMDs apply to you, here are a few of the most common questions and answers to help you determine if you need to take action.

Am I required to take an RMD if I am still working?
If you’re age 72 or older and own a traditional IRA, SEP IRA or SIMPLE IRA, you will be required to take your RMD whether you are still working or not.  If this is your first year for RMDs, you have a choice.  You can take your RMD either by year end, or no later than April 1st of next year. If you don’t take your first RMD this year, you’ll have to take both your first and second year RMDs next year.  Make sure you consider the income tax impact of taking both in the same year before you decide to delay. RMDs for all subsequent years must be taken before the end of the year.

RMD rules also apply to savings in employer-provided retirement accounts, like a 401(k) or 403(b), but special rules apply that may allow you to delay the start of your RMDs if you are still working.  If you do not own 5% or more of the company that sponsors your retirement plan, you are able to delay RMDs until you retire or no longer work for the employer.

Do I have to take an RMD if I inherited an IRA?
If you have an IRA that you inherited from anyone other than your spouse, you may have an annual RMD depending on the year the account owner died.  If the account owner died prior to 2020, annual required minimum distributions are based on your single life expectancy. If the account owner (or prior beneficiary) died in 2020 or later, then the 10-year rule generally applies.  Under the 10-year rule, in certain situations you also may have to take annual required distributions and must distribute the inherited IRA in full by the end of the 10th year.  Exceptions to the 10-year rule apply for non-spouse beneficiaries who are chronically ill, disabled, or are the minor children of the account owner.

If you are the surviving spouse, RMDs may also apply depending on the age of the account owner at the time of death and your age as beneficiary.  In general, if the account owner was taking RMDs, and you establish an inherited IRA, you will continue to have annual RMDs.  If the account owner was younger than RMD age, you are able to delay the start of your RMDs until the deceased spouse would have been required to begin his or her own RMDs.  If you roll over the decedent’s IRA into an IRA of your own, RMDs would also be required if you are age 72 or older.

Can I convert my RMD to a Roth IRA?
No.  RMDs are not eligible for rollover into another IRA or employer’s retirement plan, nor can they be converted to a Roth IRA in a rollover/conversion.  However, if you are age 72 or older and you have already taken your RMD for the year, you can convert any remaining amounts in your traditional IRA to a Roth IRA.

If I give my RMD to charity, do I have to pay taxes on it?
RMDs are generally included in your taxable income.  However, if your RMD meets the requirements to be a qualified charitable distribution (QCD), then the distribution is tax free. A QCD is a direct gift out of the IRA to a qualified charity of amounts up to $100,000 a year. It will not increase your taxable income and therefore does not increase your adjusted gross income and can be a tax-efficient strategy even if you do not itemize. A QCD can only be made from traditional IRAs (not 401(k) or other employer-sponsored retirement plans, including SEP and SIMPLE IRAs) and you must be age 70½ (6 months past your 70th birthday) at the time you make the gift.  Not all charities qualify, so check with your tax advisor or the charity before you take the distribution from the IRA to make sure it qualifies.

With only one week remaining in the year, make sure you talk to your financial advisor right away if you need to take an RMD or are interested in doing a QCD by year end.


Benjamin F. Edwards does not provide tax advice, therefore it is also important to consult with your tax professional for additional guidance tailored to your specific situation.