To RMD or Not to RMD…

…in the first year?  That is a question.  Not THE question – surely there are more important questions in life.  But, with the new SECURE Act 2.0 moving the Required Minimum Distribution start date out yet another year, that old question may pop up again.

To recap, the rule has always been that in the first year of your RMD requirement (used to be 70 1/2 , not 73), you could defer taking the distribution until April 1st of the year following the magic birthday.  From there on out, you must take your RMD by December 31st every year.

So, if you delay that first withdrawal until April 1st of the following year AND are required to take that year’s withdrawal by December 31st, you will be taking, and taxed on, two distributions in one year.  Why would anyone do that?

Mostly (and I’m guessing why the rule is like this in the first place) it would be beneficial to delay if you have significant other income in the year your RMD starts and want to push the distribution out to the next year when your tax bracket would be lower.

This could be the case if you worked part of the year before retirement, sold your business, or had a company stock vesting event.

However, even with people working longer, I suspect that many will be retired before age 73.  That means that it doesn’t really help to push the first payment to the next calendar year.  It could potentially push you into a higher tax bracket in the year you are forced to take two payments.

As ever, consult with your financial advisor and tax professional when making this decision.

On the bonus side, thank you Congress for changing the RMD age to a more normal benchmark.  No more counting on my fingers to figure out a client’s seventy-and-a-half birthday.



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