02 Feb When do I have to take my first IRA distribution?

Q. I’m confused about the first time I will have to take a Required Minimum Distribution. I turn 72 this year. What are the rules?
— Confused

A. Happy birthday, and we’re glad you asked.

There have been recent rule changes.

At the end of last year, Congress changed the age for Required Minimum Distributions (RMDs) to 73, said Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton.

He said the change applies to IRAs and workplace retirement plans, provided the individual is no longer working there or is still employed, but not a 5% or greater owner.

So your first RMD year will be 2024, Hook said.

But given that next year is right around the corner, it is helpful to understand the rules ahead of time.

Here’s how you calculate the amount of your RMD.

First, Hook said, take the account balance for all IRA accounts and workplace retirement plans you have as of Dec. 31 of the year prior to the RMD year. In your case, this will be Dec. 31, 2023, Hook said.

Then take a look at the life expectancy from one of two IRS tables from IRS Publication 590-B.

If you are single or your spouse is not greater than 10 years younger than you, use the Uniform Lifetime Table and look up your age as of Dec. 31 of the RMD year, he said.

If you are married and your spouse is more than 10 years younger than you, then use the Joint Life Expectancy table. Look up your and your spouse’s ages as of Dec. 31 of the RMD year, he said.

“For calculating your RMD, you can aggregate all your IRA accounts if you have more than one but you can satisfy the RMD from any of the IRAs,” he said.
However, you cannot aggregate any workplace plans with IRAs, Hook said. Instead, you must calculate and satisfy those RMDs separately, he said.

“Also note that the RMD requirement for a workplace plan only applies to plans where you no longer work at the company or, if you do still work there, you are a 5% or greater owner of the company,” he said. “If you own less than 5% and still work at the company, then no RMD is required for that plan until after you retire.”

Once you find the correct spot on the correct table, take the Dec. 31 balance of your IRA and divide it by the appropriate life expectancy factor. The result is your Required Minimum Distribution for the year, he said.

“For all years other than the first year, you must satisfy the RMD by Dec. 31 of the RMD year,” he said. “So, for example, someone turning age 77 on Jan. 25, 2023, has until Dec. 31, 2023, to satisfy their RMD for the year 2023.”

However, there is an exception to this for the first RMD year.

“For the first year only, you have until April 1 of the year following the year you turn age 73,” he said. “So in your case, since 2024 is your first RMD year, you could satisfy your RMD by April 1, 2025.”

If you do that, you still need to satisfy your 2025 RMD by Dec. 31, 2025, meaning you would need to take two RMDs in 2025, which may or may not make sense depending upon your tax bracket in 2024 compared to 2025, Hook said.

“Another thing to note is that you do not have to wait until you turn 73 in the year to take the RMD,” he said. “If you were born on Dec. 27, 1951, you could satisfy your RMD as early as Jan. 2, 2024, or as late as April 1, 2025. Note that this only applies to the calendar year in which you turn age 73. You cannot take the 2024 RMD in December of 2023.”

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This story was originally published on Feb. 2, 2023.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.