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Should You Delay Your First RMD?

Remember, you have the option of delaying your first distribution until April 1 following the calendar year in which you reach age 70½ (or April 1 following the calendar year in which you retire, in some cases).

You might delay taking your first distribution if you expect to be in a lower income tax bracket in the following year, perhaps because you are no longer working or will have less income from other sources. However, if you wait until the following year to take your first distribution, your second distribution must be made on or by December 31 of that same year.

Receiving your first and second RMDs in the same year may not be in your best interest. Since this "double" distribution will increase your taxable income for the year, it will probably cause you to pay more in federal and state income taxes. It could even push you into a higher federal income tax bracket for the year. In addition, the increased income may cause you to lose the benefit of certain tax exemptions and deductions that might otherwise be available to you. So the decision of whether to delay your first required distribution can be important, and should be based on your personal tax situation.

Example(s):  You are single and reached age 70½ in 2018. You had taxable income of $25,000 in 2018 and expect to have $25,000 in taxable income in 2019. You have money in a traditional IRA and determined that your RMD from the IRA for 2018 was $50,000, and that your RMD for 2019 is $50,000 as well. You took your first RMD in 2018. The $50,000 was included in your income for 2018, which increased your taxable income to $75,000. At a marginal tax rate of 22%, federal income tax was approximately $12,439 for 2018 (assuming no other variables). In 2019, you take your second RMD. The $50,000 will be included in your income for 2019, increasing your taxable income to $75,000 and resulting in federal income tax of approximately $12,358. Total federal income tax for 2018 and 2019 will be $24,797.

Now suppose you did not take your first RMD in 2018 but waited until 2019. In 2018, your taxable income was $25,000. At a marginal tax rate of 12%, your federal income tax was $2,596 for 2018. In 2019, you take both your first RMD ($50,000) and your second RMD ($50,000). These two $50,000 distributions will increase your taxable income in 2019 to $125,000, taxable at a marginal rate of 24%, resulting in federal income tax of approximately $22,956. Total federal income tax for 2018 and 2019 will be $25,552 — $755 more than if you had taken your first RMD in 2018.

Copyright 2006-2019 Broadridge Investor Communication Solutions, Inc. All rights reserved. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
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Josh is the author of this solution article.

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