Your First RMD: To Delay or Not to Delay
Your First RMD: To Delay or Not to Delay
On my way home from work recently, I stopped to do a little shopping. At the checkout, the cashier noticed the branding on my shirt and asked if I was a financial advisor, which I confirmed. She went on to tell me she had turned 73 this year, and was confused about when she needed to withdraw her Required Minimum Distribution (RMD). Some had told her she needed to take it by the end of this year, and others had told her she could, and should, delay it until next year, although she also was unsure of the deadline if she did delay.
Not only was she unsure on some of the guidelines, she also wasn’t sure what to do from a strategic and financial planning perspective. I was glad to help, so I first clarified the rules for her.
I told her she could delay her first RMD until April 1st of next year. However, if she does that, she still has to take out her regular RMD next year. In other words, delaying your first RMD means you wind up taking two RMD’s the following year.
This came as a surprise to her. With that knowledge now in her hands, she then expressed uncertainty over whether to delay it or not. Of course, without knowing her entire financial picture, I certainly couldn’t give her any specific advice. But I did briefly go over the main things to consider.
If you are at RMD age (currently 73 years old as of 2025), or are nearing RMD age and wondering the same thing, here are some basic ideas to keep in mind.
Ideas to Consider:
First off, are you still working? And, are you planning on working next year for the entire year? If you’re still working the year you turn RMD age, but don’t plan on working the following year (or working much less) then delaying your first RMD is a strategy that may benefit you. Why? It all comes down to taxes.
If you’re receiving employment income, and then take RMD income on top of that, you’re essentially increasing your taxable income that year, and therefore will send off more money to the IRS than perhaps you’d like to. You may not need that extra income since you’re still working, so taking it anyway and increasing your tax burden may not make sense.
What if you’re working this year but also plan to work next year? In this case, assuming your employment income would roughly be the same, delaying your first RMD may not make sense. By delaying your first RMD, you’re lessening your tax burden this year, but increasing it next year. Depending on the size of your IRA, you may end up increasing it substantially.
If you’re already retired and plan to keep it that way, delaying it may not make sense either, as you’re taking a lighter tax burden this year only to increase it next year. In this case, it may make more sense to even out the distributions and just start taking one per year, rather than needing to take two in one year.
Of course, whether or not your spouse is working will also factor into this, assuming you’re filing jointly. Big picture here is, what is your total taxable income likely to be the year you turn RMD age, and what is it likely to be the following year? This will be a major guiding force for you in determining whether to delay or not.
I have heard some say, always delay it no matter what, because then you keep that money invested in the account. This isn’t bad advice in principle, but it completely ignores the fact that you can transfer investments in-kind from an IRA to an investment account, and the total value of the securities you transfer counts as a withdrawal.
In other words, you do not have to sell the investments themselves to take your RMD. Even if the firm that holds your IRA doesn’t allow this for some reason, you could still simply sell, transfer the cash to an investment account and then buy right back in. So, although I am generally an advocate of keeping money invested if you don’t need it in the near future, this is not a legitimate reason to delay your RMD.
Ultimately, the decision to delay your first RMD or not will come down to many factors. Taxes will be a big one, but so will your overall situation and what income needs you have. If you find yourself in the fortunate position where you don’t need your RMD but don’t want to delay it, a Qualified Charitable Distribution is another option. This allows you to send as much as $108,000 from your IRA to a qualified charity, and the IRS will not tax you on that money.
If you’re in or nearing the distribution phase of your financial plan and aren’t sure what steps you should take when it comes to RMD’s and your overall cashflow plan, feel free to reach out to me for help. It’s what I’m here for.
Ryan Page, CFP®, MBA®
Office & Text:720-826-1092
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax situation with a qualified tax advisor.
