Compare taking your first IRA RMD this year with delaying until April. Consider two distributions next year, tax assumptions and processing deadlines.
November 11, 2024 · Financial Forte Staff
Historical article: prepared retrospectively using information available as of November 11, 2024.
Your first required minimum distribution comes with a timing choice that can look like a free extension. If the rules allow you to wait until the following April, why take taxable income sooner? The answer depends on what that delay adds to the next year's return.
For a traditional IRA owner who turns 73 in 2024, the first RMD generally can be taken during 2024 or delayed until April 1, 2025. The 2025 RMD is still due by December 31, 2025. Waiting can therefore place two required distributions in the same tax year. Compare both years before using the delay automatically.[1]
Establish the correct account and deadline
Start with your birth date, account types and whether you own or inherited each account. This discussion concerns an owner's first traditional IRA RMD. Inherited accounts have separate rules, and employer-plan timing can differ. An IRA owner's continued employment does not create a general exemption from the IRA requirement.[1]
The custodian's calculation can help, but confirm the information used, including the applicable prior year-end balance and life-expectancy factor. Special circumstances can change which factor applies. If you have multiple IRAs, obtain a calculation for each and confirm the permitted aggregation before choosing the account that will supply the money.
Do not assume that a withdrawal from any retirement account satisfies every other account's requirement. IRA and employer-plan obligations need to be mapped separately; confirm the aggregation rules for each account type with the administrator. The goal is a clear list of amounts, deadlines and funding accounts rather than a single total assembled from unlike accounts.
Also identify distributions already taken during the year that count toward the requirement. For example, $4,000 of qualifying distributions already received toward a $10,000 requirement would leave $6,000 to complete. The amount still needed may be smaller than the original calculation. That review prevents both an unintended shortfall and an unnecessary extra withdrawal made because earlier transactions were overlooked.
Compare the two-year income pattern
Walter turns 73 during 2024 in this hypothetical example. His verified first-year RMD is $10,000. For planning, suppose his separate 2025 RMD is estimated at $11,000; the actual 2025 amount will depend on the applicable year-end balance and factor. Assume both distributions would be fully taxable.
If Walter takes the first $10,000 during 2024, that amount appears in 2024 income. If he delays it until early 2025, the first $10,000 and the estimated $11,000 for 2025 would produce $21,000 of required distributions received during 2025. The April deadline changes timing; it does not erase the following year's obligation.
The $11,000 is a planning estimate, not a claim that taking or delaying the first withdrawal has no effect on future balances. A full projection should recalculate the later RMD under each scenario. The simplified comparison isolates the possibility of concentrating taxable distributions in one year.
Suppose Walter's tax professional estimates that the entire first $10,000 would face an incremental 22% federal rate if taken in 2024 and 24% if delayed into 2025. That would mean an illustrative $2,200 versus $2,400 of federal tax on that first distribution, a $200 difference. Those rates are assumptions, not a statement about his actual bracket or future law.
If the projected rate were lower next year, delaying could look more attractive. Other income interactions could also change the comparison. Use the complete projected returns rather than multiplying the distribution by a familiar bracket and assuming the answer is settled.
Coordinate the distribution with cash needs and investments
Walter may need the money for ordinary expenses, a tax payment or a planned purchase. If so, the timing question should include when the cash is actually needed. Borrowing to postpone a withdrawal can add a cost that outweighs an expected tax advantage.
If he does not need the proceeds for spending, taking an RMD does not require consuming all the money. After accounting for taxes and other needs, he can consider retaining or investing the available proceeds outside the IRA. The account's tax treatment changes, and the new investment should fit the overall plan.
Choose the assets used for the distribution deliberately. A withdrawal can help rebalance the portfolio, or it can unintentionally leave the remaining allocation less suitable. If considering an in-kind distribution, confirm the custodian's procedures and valuation treatment rather than assuming that moving securities avoids the distribution's tax consequences.
RMD amounts are not eligible rollover amounts and cannot be converted to a Roth IRA as a way to satisfy the requirement. A separate Roth-conversion decision needs coordination with the RMD and the tax projection. Sending money to a Roth account does not make the required distribution disappear.[1]
Complete the instruction and verify the result
Decide how any tax will be paid and distinguish the gross distribution from the cash deposited into checking. For example, a $10,000 gross distribution with $2,000 withheld leaves $8,000 of cash. The withholding is a tax payment; it does not necessarily equal the final tax liability.
Allow time for processing, especially when an account transfer, investment sale or distribution form is involved. A request submitted near a deadline is not the same as a completed transaction. Confirm the amount distributed, any withholding and the remaining requirement after the transaction posts.
Record the next deadline and the person responsible for submitting and checking the instruction at the same time. If Walter uses the April 1, 2025 option, he should also have an explicit plan for the separate December 31, 2025 requirement. Treating April as the only date on the calendar is an avoidable source of confusion.
The first-RMD delay is an option to evaluate, not an automatic tax-saving strategy. Compare the two years, coordinate the money with your spending and investments, and verify that the required amount reaches the correct tax year. That makes the timing choice part of the plan instead of a decision driven only by the latest permissible date.
Related reading
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Educational information, not personalized investment, tax, legal or benefits advice. Examples use hypothetical assumptions. Verify current rules and your circumstances before acting.
