Should You Take or Postpone Your First RMD?
Jim Blankenship, CFP®, EA 28 December 2009 4 Comments
The RuleThis decision comes about because of the special rule regarding your first RMD: In the year that you achieve age 70½, you don’t have to take the first distribution until April 1 of the following year. For each subsequent year thereafter, you’re required to take your RMD by December 31 of the year… so this first year provides you with the opportunity to plan the income just a bit. Generally it’s a better idea to take the distribution in the first year, with just a few reasons that you might reconsider:
- if your income is considerably higher in the first year than it will be in the following year, you might want to delay the distribution, recognizing the income in a year when your tax bracket is lower. This situation might come about if you’ve delayed retirement until age 70, so you’d potentially have much more income in that year than the following year.
- if taking the distribution would have an adverse impact on your Social Security, causing a higher amount to be taxed in the first year (versus the second year), you might want to delay the distribution.
- other MAGI limited provisions may impact your decision as well – but these are too varied and specific to the individual to list here
Reasons to NOT DelayThe downsides to delaying receipt of the first year’s RMD: delaying the distribution to the following year will cause a double-shot of RMD to be recognized as income in the second year. In addition, the two RMDs in one year will be unnecessarily complicated: Each has a different deadline (April 1 for the delayed RMD, December 31 for the regular RMD); each is calculated on different account balances (the delayed one is based upon the balance of December 31 of the year before you turned age 70½, the regular RMD is based upon the balance one year later); and each is calculated based upon your Table I value for different ages (the first is based on your age on your birthday in the first year, the second is based on your age in the second year). All of these differences add up to lots of confusion and plenty of opportunity for making an error, so unless you have a very compelling reason (such as those listed above) it’s probably in your best interest to go ahead and take the first distribution in the first year – when you reach age 70½. Note: Of course, this is a moot point if you reached age 70½ during 2009, since the RMD is not required for that year. Also, bear in mind that this planning doesn’t apply to inherited IRAs and the RMDs – only to your own regular distributions from your own IRA.
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