Calculating your first owner RMD

Submitted by Robert Vashko on Thu, 2023-03-09 21:08

So let’s say you turned 72 in 2022, and you wanted to take your first RMD out that same year, in order to avoid a double RMD in 2023.

So you decide to take out your first RMD on 12/31/22. You use the 12/31/21 balance in order to calculate that RMD, right?

Assuming so, then let’s change the hypo. Let’s say you *don’t* want to take your first RMD in 2022 and would rather take it on your RBD of 4/1/23.

When taking your first RMD out on 4/1/23, are you still using the 12/31/21 balance? Or, because you’ve crossed years, do you now bump to using the 12/31/22 balance?

This seems like a question with a very elementary and common-sense answer, but I admit I’ve not thought about it much before.

Please and thank you.



Submitted by Alan - IRA critic on Thu, 2023-03-09 23:41

  • The 2022 RMD stays the same regardless of when it is distributed. It is based on the taxpayer age in 2022 and the IRA balance on 12/31/2021. Of course, any portion of that 2022 RMD can be deferred to 2023, but the calculation remains the same. The deferred portion will result in the 12/31/2022 balance being higher than it would have been had the 2022 RMD been completed in 2022, so that would slightly increase the 2023 RMD since it is calculated from the 12/31/2022 balance. 
  • The first RMD distribution year includes this one time timing choice. Stable income taxpayers would normally take the first RMD in that year to avoid 2 RMDs in the second year, but some taxpayers may benefit from deferring all or part to year 2 depending on when they retired in year 1 if they were employed. Similarly, for earlier retirees the taxation rules for SS income can provide an opportunity to manipulate the RMD income in a way that will result in an overall tax savings by keeping year one taxable income low enough so that less than 85% or even 0 SS income is included in AGI. They might have 85% of SS income taxable only in year 2, while taking the RMD in each year might result in 85% of SS income included in both years. A similar scenario may exist for the 0 bracket on LTCG and qualified dividend income. This takes some detailed number crunching, usually done in December of the first RMD year so the first year taxable income is known, and the next year can be projected. Then in that same month the first year RMD can be taken in whole or part, with the rest deferred to year 2. 

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