Timing Initial RMD Withdrawals When the Grace Period to April First of the Next Tax Year Is Permitted
Suppose a client is in her initial year of owing an RMD on a 403(b) account in 2024. She can make the RMD withdrawal in 2024 or delay the first RMD until 2025 (before April first). But can she take some of that initial year’s RMD in 2024 and then the rest of the initial RMD in 2025 before April first? As an example, $50,000 in RMD is required for 2024. Can she withdraw $25,000 and count it toward that initial $50,000 requirement in 2024, and then take another $25,000 withdrawal in March of 2025, thus satisfying the entire $50,000 RMD for 2024 before the absolute deadline in 2025 for that first-time RMD? In this scenario, she would also have to take a second withdrawal of the 2025 RMD during 2025, which would be perhaps $51,000, for total RMDs taken in 2025 of $76,000. This strategy might be employed in order to manage each year’s income so as to avoid the NIIT threshold, such as in the event she has a few final pay checks in 2024 before retiring that will not be in the income picture starting in 2025.
Permalink Submitted by Alan - IRA critic on Sat, 2024-01-06 03:50
Yes, that has always been an option. Taxpayer can defer all or any part of the first year RMD to 4/1 of the following year. This can be a tool to manage taxable income in both years.