Can I avoid getting hit with double taxes on my first two required minimum distributions (RMDs)? I’ll turn 73 in January 2024. Do I have until April 1 2024 to take my first RMD? Or do I have until April 2025? I don’t want to take my first set of RMDs in April and take another RMD in December of the same year to avoid double taxation.
-Michael
The most direct answer I can give you to your question is that you have until April of the year after the year you are required to start RMDs to complete your first one.
But I think we need to highlight the current situation and discuss a little bit more about whether you should or shouldn’t do that. Here’s what to keep in mind.
A financial advisor may help you understand the best way to time withdrawals from your retirement accounts.
What Are Required Minimum Distributions (RMDs)?
You are required to take minimum distributions from specific retirement accounts once you reach a certain age. This applies to 401(k)s, 403(b)s, SIMPLE IRAs, SEP IRAs and tax-deferred IRAs. Roth IRAs are the notable exception. IRA refers to an individual retirement account. But at what age do you take RMDs? To demystify this, it helps to understand the SECURE Act.
Understanding SECURE Act 2.0
The Securing a Strong Retirement Act, or SECURE Act 2.0, was introduced in 2021 and passed by the House of Representatives in March of 2022.
It does have strong and wide bipartisan support, however, it still needs to pass the Senate and be signed by President Joe Biden to become law. Of course, it could fail, or the Senate could pass an altered version of the bill. But at least, on this particular point, it doesn’t seem likely anything will change.
If it becomes law in its current version, SECURE Act 2.0 would raise the required age to start required minimum distributions to:
- 73 for those who reach age 72 after Dec. 31, 2022 and 73 before Jan. 1, 2030
- 74 for those who reach age 73 after Dec. 31, 2029 and 74 before Jan. 1, 2033
- 75 for those who reach age 74 after Dec. 31, 2032
So, if the current version of the SECURE Act 2.0 becomes law, someone who turns 73 in January 2024 will not have to start taking RMDs until 2024.
Understanding the Current SECURE Act
The SECURE Act of 2019, which is still the current law of the land, increased the age at which you must begin taking RMDs from age 70 to 72.
So to be clear, as of the moment I’m typing this, someone who turns 73 in 2024 must begin taking RMDs starting in the year they turn 72. That would be 2023.
When Must You Withdraw Your First RMD?
Regardless of the age at which you must begin taking your RMDs, 72 under current law or 73 if SECURE Act 2.0 passes, you have until April 1 of the year following your triggering age to take your first RMD.
- Under current law, someone who turns 72 in 2023 must take a required minimum distribution for 2023. The investor can actually withdraw it in 2023 or wait as late as April 1, 2024.
- If the SECURE Act 2.0 passes then someone who turns 72 in 2023 will be 73 in 2024 and must start RMDs in 2024. Again, the actual distribution can occur in 2024 or as late as April 1, 2025.
Take note: This “wait until April of next year” option only applies to your first RMD.
You must take each subsequent year’s RMD by Dec. 31 of that year. If you delay your first RMD to April of the following year, you will still have to take that year’s RMD by Dec. 31, too. So that would be two distributions in one calendar year.
When Should You Withdraw Your First RMD?
RMDs are taxable distributions. It’s the entire reason they exist: to prevent you from deferring the tax until the end of time. Uncle Sam wants his cut.
If you take two RMDs in a year, you’ll have a heavier tax bill. Additionally, there may be multiplicative effects, depending on the specifics of your situation.
- Two RMDs may bump you into a higher tax bracket, meaning your distribution becomes less tax-efficient.
- Two RMDs will increase your combined income, which determines how much of your Social Security benefit is taxable. This might mean more of your benefit is subject to taxation.
- Two RMDs may cause your Medicare premiums to be higher than they otherwise would be due to the income-related monthly adjustment amount (IRMAA) surcharge.
So even though you can wait until April 1 of the following year to take your first RMD, it may make sense to go ahead and take it by December of the year it applies to spread the distributions out over two tax years.
Or it may not.
I listed some reasons you may not want to wait, but you might have other factors to consider that make it more effective to wait. For example, maybe your spouse is still working but plans to retire this year. It might be more tax-efficient to take two RMDs next year when your spouse is no longer earning an income.
That’s just a hypothetical example, but you get the idea.
What to Do Next
The bottom line is that if you wait until April of the following year, you’ll have two taxable distributions that year. There isn’t a universally right or wrong way to do it. You simply need to think about your own situation and determine the best strategy on an individual basis.
Brandon Renfro, CFP®, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.
Please note that Brandon is not a participant in the SmartAdvisor Match platform.
Investing and Retirement Planning Tips
- If you have questions specific to your investing and retirement situation, a financial advisor can help. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- As you plan for income in retirement, keep an eye on Social Security. Use SmartAsset’s Social Security calculator to get an idea of what your benefits could look like in retirement.
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