Since 2023, most retirees must begin taking required minimum distributions (RMDs) from pre-tax retirement accounts at age 73. The first deadline is April 1 of the year after turning 73 and Dec. 31 for future withdrawals.
Financial experts warn that timing your first RMD can have significant tax consequences. Pre-tax retirement withdrawals are subject to regular income taxes, while long-term capital gains on profitable assets in a brokerage account are taxed at 0%, 15%, or 20%.
Retirees who take their first RMD in April will still owe another by Dec. 31, resulting in two RMDs per year. This can boost adjusted gross income, potentially triggering unexpected tax consequences such as increased Medicare premiums and higher Social Security taxes.
To avoid these issues, some retirees may consider delaying their first distribution until April 1 of the following year, but experts caution that this approach requires careful analysis to ensure it’s beneficial.
The IRS life expectancy factor is used to calculate RMDs based on year-end balances. However, if your portfolio grew significantly in 2024, you could face a larger-than-expected RMD in 2025. It’s essential to “run the numbers” and consider account balances and tax projections before making a decision.
Experts recommend being tactical and savvy when taking the first distribution, considering factors such as income taxes, Medicare premiums, and Social Security taxes. By understanding the potential tax consequences of your RMD strategy, you can make informed decisions about when to take your first distribution.
Source: https://www.cnbc.com/2024/12/06/first-required-minimum-distribution.html