After you turn 73, the IRS requires you to start withdrawing money from certain retirement accounts. If you have money in tax-deferred accounts, such as a traditional IRA, a 401(k), or other retirement accounts where you got a tax benefit for contributing, these rules apply to you.
The mandatory withdrawals are known as required minimum distributions, or RMDs. They generally apply to all retirement accounts that don't have the word "Roth" in the account type.
As a general rule, you'll need to take a required minimum distribution by the end of each calendar year after you turn 73. But there's a big exception for your first RMD. It doesn't need to be taken until April 1 of the year following the year in which you turn 73. But waiting until the last minute isn't the right move for everyone.
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The problem with taking your first RMD late
At first, it might seem like a smart idea to wait as long as possible to take your first RMD if you don't need the money to cover expenses. After all, the longer you can leave your money in the account to grow on a tax-deferred basis, the better, right?
Before you decide to do this, however, it's extremely important to consider the tax implications. And there are two important principles to keep in mind:
- Withdrawals from tax-deferred retirement accounts are generally considered to be taxable income.
- The money you withdraw is taxable in the year it is taken out of the account.
The short explanation is that if you wait as long as possible to take your first RMD, you can be hit with a surprisingly high tax bill.
Consider this example. Let's say that you turned 73 years old in September 2025, which means that your first RMD must be taken by April 1, 2026. Based on your 401(k) account balance and the RMD calculation method, you must take out $40,000. So, you schedule an automatic transfer from your 401(k) for $40,000 to occur on April 1.
However, you'll have to take your second RMD by Dec. 31, 2026. So, you'll have taken two RMDs within the same calendar year. If you're required to take out another $40,000, this means you'll have an additional $80,000 in taxable income for 2026, which, depending on your financial circumstances, could certainly catapult you into a higher marginal tax bracket for the year.
When it could make sense to wait until April
Of course, waiting as long as possible to take your first RMD could still make good financial sense in some cases.
The most obvious example is if doing so wouldn't impact your tax bill. Maybe your RMDs are small enough that it wouldn't make much of a difference in your taxes owed. Or perhaps you have sufficient tax deductions that the additional income would be effectively tax-free.
The point is that there's no one-size-fits-all rule when it comes to the best time to take your first RMD. But for many people, doing so can result in thousands of dollars in additional tax liability, so it's important to know the impact before you make a decision. If you aren't sure what the best course of action is, it's always a smart idea to consult with a financial planner or an accountant, preferably one who specializes in tax planning.
Under no circumstances should you take your first RMD late
As a final thought, it's important to clarify what it means to take your RMD late. Regardless of what the best timing is for your tax bill, if you complete your first RMD by April 1 in the year after you turn 73, you have taken your RMD "on time" in the eyes of the IRS.
If you don't take your first RMD by this date, you'll face a stiff penalty equal to 25% of the amount you should have withdrawn. You can reduce this penalty to 10% if you correct the mistake within two years, but even so, that's a harsh penalty that's very easy to avoid.
