The required minimum distribution age (or RMD) has increased to 73. This is very good news for those that have ample savings.
Starting January 1, 2023, individuals born after December 31, 1950, and before January 1, 1960, are now required to take their annual Required Minimum Distributions (RMDs) at the age of 73 instead of 72. Furthermore, this age will increase again in 2033, extending to age 75. These adjustments provide increased flexibility for retirement planning, which can significantly impact your financial strategy.
For those who will turn 73 in 2023, the good news is that they won’t have to initiate their RMDs from their IRA until the following year when they reach age 73. Therefore, the first RMD, in this case, will be due in 2024. This means there’s no RMD requirement for 2023. Consequently, the deadline for taking your initial RMD is set for April 1, 2025.
Individuals born before December 31, 1950, need to calculate their RMD based on the total value of their retirement accounts as of December 31 of the preceding year and their life expectancy. The IRS provides tables to aid in determining RMDs according to the individual’s age.
Always keep in mind that the deadline for taking your first RMD is April 1 of the year after reaching RMD age, with all subsequent RMDs required by December 31 of each year. Therefore, if you turn 73 in 2024, your first RMD will be due by April 1, 2025, with subsequent RMDs mandatory by December 31 of each year.
To avoid potential tax pitfalls, it’s advisable to take your first RMD in the year preceding your April deadline. For example, if you’ll turn 73 in 2024, you can opt to take your first RMD in 2023 instead of waiting until April 1, 2025. By doing so, you can prevent facing two RMDs in the same year, potentially pushing you into a higher tax bracket and increasing your tax liability.
Let’s illustrate this with an example. Susan’s birthdate is July 1, 1956, which implies she will reach 73 in 2029. Her first RMD should be taken by April 1, 2030. However, Susan decides to proactively take her initial RMD in 2029 to avoid the complication of two RMDs in the same year. As of December 31, 2028, she holds $500,000 in her retirement account, and her life expectancy is 25 years. Based on IRS tables, her RMD for 2029 amounts to $20,000 ($500,000 divided by 25). This early action ensures she won’t have to manage another RMD in 2030, potentially reducing her tax liability.
When navigating the complexities of RMDs and ensuring your retirement planning aligns with your financial goals, consulting with a Fee-Only financial adviser can provide invaluable assistance. These experts offer unbiased, tailored advice to help you optimize your financial strategy and make informed decisions.
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