Take-Away: The Tax Code and Regulations have multiple deadlines that often confuse retirement account owners. Keeping these deadlines straight is a challenge,  which is something that advisors must continuously remind account owners about.

2022 Roth IRA Conversions: The deadline for a Roth IRA conversion in 2022 is the end of this calendar year- December 31, 2022. This Roth IRA conversion deadline is often confused with another IRA deadline. Many individuals think the Roth IRA conversion deadline is the same as for their making their IRA contribution for 2022, which has as its deadline the individual’s tax-filing date (April, 2023.) That is not the case.

Roth Conversion Deadline: A Roth IRA conversion must occur during the calendar year, i.e. 2022 and it must be reported on a 2022 Form 1099-R. Accordingly, for those individuals who consider making a Roth IRA conversion in 2022, they should leave enough time in the calendar year  in which to complete their Roth IRA conversion transaction.

Required Beginning Date Deadline: The required beginning date (RBD) was a hot topic in 2022 with the publication of the Proposed SECURE Act Regulations, and its surprise of annual RMDs from inherited IRAs if the account owner died after his/her RBD. Despite the importance of the RBD and its impact on both lifetime and post-death RMDs, there is still a fair amount of confusion with regard to the  RBD deadline.

RBD: The required beginning date is April 1 of the year after the account owner turns age 72. The RBD is not the year the account owner turns age 72. Nor is the RBD the end of the calendar year in which the account owner turns age 72. When the account owner dies determines if the RMD applies/has been met.

Example 1: Alex turned age 72 in January, 2022. Alex, being proactive, took his first distribution from his traditional  IRA in March 2022. Alex could have delayed taking his first RMD until April 1, 2023, but he decided to take his first RMD shortly after turning age 72. Alex dies in a car accident in September, 2022. Alex took the withdrawal from his IRA in March 2022, but died before his RBD. Alex’s March, 2022 IRA withdrawal will be treated as a voluntary withdrawal that did not have to be taken by him prior to his death.

Example 2: Alice also turned age 72 in January, 2022. Unlike Alex, Alice is inattentive; practically speaking, Alice is clueless when it comes to finances, RBDs, RMDs, etc. Being clueless, Alice does not take a distribution from her traditional IRA in all of 2022. In January, 2023, Alice turns age 73. On March 27, 2023, Alice meets with her accountant about her 2022 Form 1040 income tax return. Alice’s CPA informs her that since she failed to take a distribution from her traditional IRA in 2022, she will  have to take two RMDs in 2023 (one for 2022, since her RBD deadline is April 1, 2023, and a second distribution in 2023, for that calendar year’s RMD.) Alice dies in a car accident on her way home from the CPA’s office. Alice named her child Connie as the sole beneficiary of Alice’s IRA. Connie will not have to worry about a year-of-death RMD. Alice is considered to have died before her RBD- she died before April 1, 2023. Consequently,  Alice died without being subject to RMDs. Connie will not have to take annual RMDs from Alice’s inherited IRA over the next 10 years, if that is her desire. Had Alice died after April 1, 2023, 5 days later, Connie would have had to take annual RMDs from the inherited IRA for the next 9 years.

Conclusion: The Tax Code and its Regulations are riddled with rules, exceptions, and ‘gotcha’ deadlines. It is wishful thinking that the rules that govern retirement plans and distributions from such plans could be simplified. So we learn to live with them as best we can, but they are ridiculously complex, even for sophisticated advisors.