Q. I just turned 70 in August so I’ll be 70½ in 2025. I know I have to start taking funds out of my IRA and pay taxes on those withdrawals but am not clear on when I have to do that or how much I have to take out. The articles I read use different ages. Can you help? — Dave in Suntree
A. Dave, you are probably getting conflicting information because the rules regarding Required Minimum Distributions (RMD) have changed a few times in recent years. Anything not written recently might not reflect all the changes.
Other than your personal ROTH IRA, if you have one, RMDs are required from all types of IRAs and all other qualified retirement accounts like 401(k)s and 403(b)s.
The starting age for RMD is 73 for taxpayers born between Jan. 1, 1951, and Dec. 31, 1959. You were born in 1954, so your starting year is 2027. Taxpayers born in 1960 or later will start at 75. Those born before 1951 had a start age of 72 or 70 ½ and should be taking RMD currently. Once 2027 rolls around, any amounts distributed in 2027 will count toward the 2027 RMD, even those taken before your birthday. The IRS wants to see that at least the minimum was distributed on time.
Your RMD will be calculated by taking your Dec. 31, 2026, account balance and dividing by the factor for a 73-year-old (26.5) from the 2022 Table III, Uniform Life Table. (If you are married and your spouse is more than 10 years younger than you, use the factor in Table II, Joint and Last Survivor Life Expectancy.) Every year, you recalculate the RMD based on the prior year end balance. So, your 2028 RMD will be based on the Dec. 31, 2027, balance and the factor for a 74 year old, 25.5. The 2028 RMD is due by Dec. 31, 2028, and is satisfied based on distributions made during the calendar year of 2028. This pattern — due by end of year based on the balance on Dec. 31 of the prior year and the life expectancy factor for your age in the current year — continues for the rest of your life.
There is one exception to that pattern. Your first RMD, the one for 2027, can be delayed past Dec. 31, 2027 into the following year as late as April 1, 2028. If you don’t take the first RMD in 2027 and delay it into spring of 2028, you will be taking two RMDs in 2028 and reporting the income from both the 2027 and 2028 RMD on your 2028 tax return. That may or may not be good. If your 2027 marginal tax rate will be lower than in 2028, delaying is probably not wise. If your 2028 marginal tax rate is lower than in 2027, delaying could save you some money.
Dave, there are more rules about RMDs. Some can trip you up, but others present opportunities to manage the taxation on RMDs and if you have more than one IRA or retirement account, it can get a little complex. Regardless, the more years before RMD kick in, the more impactful planning for the start of RMD can be.
Dan Moisand, CFP® has been featured as one of America’s top independent fee-only financial planners by at least 10 financial planning publications and practices at one of America’s most decorated independent firms. For more info, e-mail him dan@moisandfitzgerald.com, visit moisandfitzgerald.com or call Dan at 321-253-5400, Ext. 101.
Originally published on FloridaToday. Read the original article here.