Understanding Required Minimum Distribution Rules
So let’s say you are among the many Baby Boomers who turned 70½ in 2015. By now, you probably know that you were required to take the first RMD from your IRA by April 1, 2016. The next question Boomers are asking—several months later—is “do I have to take another RMD by the end of this year?” An even bigger question is “what happens if I do, and it boosts my taxable income into the next bracket?”
Kiplinger’s article, “RMD Tips for Retirees Taking Their First Required Minimum Distributions,” explains that, generally speaking, you need to take your required minimum distributions by December 31st every year. However, your first RMD may be delayed until April 1 of the year after the year you turn age 70½, but you have to take a second RMD (the one for age 71) in the same year by December 31st.
If you have to take two RMDs in one year, as many do, it could cause an individual to experience an unexpectedly large taxable income for the year. This could put you into a higher tax bracket and also impact the amount of your Social Security benefits subject to taxes.
Also, note that if your adjusted gross income plus tax-exempt interest income rises above $85,000 if you are single or $170,000 if married and filing jointly, you’ll pay more for Medicare premiums—$170.50 to $389.80 per person each month for Part B premiums and an extra $12.70 to $72.90 per person each month for Part D.
The IRA required minimum distribution you take on April 1st is based on the balance in your traditional IRAs as of December 31, 2014, and the second RMD of the year is based on the balance in your IRAs as of December 31, 2015.
Even so, you can decrease the taxable amount for the current year by making a tax-free transfer to charity of up to $100,000 from your IRA anytime during the year, but it’s too late to make a tax-free transfer for your 2015 RMD. That amount will count as your required minimum distribution for the year, but it isn’t included in your adjusted gross income.
The one good piece of news is that the law allowing for these transfers is now permanent, so you don’t have to wait for Congress to pass any bills at the end of the calendar year. However, these distributions and transfers all interact with other retirement accounts and transactions, so it is advised to consult with an experienced professional before going forward with these and related transactions. As always, your estate planning attorney is best positioned to serve as your team’s “quarterback” to make sure that all transactions work to your benefit.
Reference: Kiplinger (March 31, 2016) “RMD Tips for Retirees Taking Their First Required Minimum Distributions”