By Sarah Brenner, JD
Director of Retirement Education
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The year 2022 is coming to a close. The holidays season is upon us. That means that the clock is ticking on year-end IRA deadlines. Be sure to get the following four IRA-related tasks done before we ring in the new year.
- Take an RMD from your retirement account. If you have a traditional IRA and you are age 73 or older you will need to take a 2022 required minimum distribution (RMD) by the end of the year. If you are 72 in 2022, you will have a little extra time to take your first RMD. Your deadline will be April 1, 2023. Those who must take an RMD for 2022 should get this done sooner rather than later. May custodians have earlier internal deadlines to process these transactions and waiting until the last minute can result in mistakes. The penalty for not taking an RMD is a hefty 50%.
- Take an RMD from an inherited IRA. Many beneficiaries are required to take 2022 RMDs from inherited IRAs. If you inherited an IRA prior to the SECURE Act or if you are an eligible designated beneficiary who inherited in 2020 or 2021, you will need to take an RMD for this year. Beneficiaries are also responsible for the year-of-death RMD if the IRA owner did not take it prior to death. (Beneficiaries subject to the 10-year payout rule under the SECURE Act catch a break. The IRS has waived the 50% penalty for 2022 RMDs that are not taken when a beneficiary is subject to the 10-year rule due to all the confusion surrounding this new rule.)
- Do a QCD. The holiday season is the time when many are feeling charitable. A good way to give if you have an IRA and are age 70 ½ or older is to do a qualified charitable distribution (QCD). This is a tax-free transfer directly from your IRA to the charity of your choice. The annual limit is $100,000. A QCD can satisfy an RMD and is not included in modified adjusted gross income. There is no such thing as a prior-year QCD, so if this strategy is of interest to you for this year, you will need to get it done by December 31, 2022.
- Convert to a Roth IRA. Tax rates are historically low, and markets have come down from their previous heights. Those conditions are ideal for Roth IRA conversions. Time is running out though for 2022. The deadline for converting for this year is December 31, 2022.