If you're not familiar with required minimum distributions (RMDs) and their rules, it could cost you a lot. It's smart to get savvy about RMDs, even if your retirement is years away.
Here's a brief introduction to RMDs and some thoughts on when you might want to take your first one. It's worth reading, even if you're not turning 73 this year.
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Required minimum distribution basics
Most of us would do well to make the most of tax-advantaged retirement accounts -- such as individual retirement accounts (IRAs) and 401(k)s -- as we save and invest for retirement. But with certain such accounts, you'll be expected -- nay, required -- to take required minimum distributions.
RMDs are required to be taken annually from accounts such as traditional IRAs, SEP IRAs, and SIMPLE IRAs once you reach the age of 73. (Roth accounts don't feature RMDs for the original owners of the accounts.)
When you take your RMD, that income will count as taxable income -- so plan for it when you're developing your retirement plan.
Important: When to take your first RMD
If you're turning 73 in 2026 or soon after, take note:
- You have until April 1 of the year after you turn 73 to take your first RMD.
- After that, though, the deadlines fall on Dec. 31.
- Your second RMD will be due on Dec. 31 of the year in which you turn 74.
Here, then, are three key options, assuming you're turning 73 in 2026:
- You could take your first RMD in 2026 and your second in 2027.
- You could take your first RMD by April 1, 2027 and your second by Dec. 31, 2027.
- You could take them in chunks. The annual RMD doesn't need to be taken all at once. The total required amount simply needs to be withdrawn by the deadline.
What to do
If you take your first RMD in 2026 and the next in 2027, you'll be spreading that income across two tax years. If you take them both in 2027, your taxable income will increase more that year -- which could potentially move you into a higher tax bracket. In that scenario, you may owe more in taxes.
Another consideration is the overall market. If your retirement account is mostly invested in stocks and you take your withdrawal early, you could miss out on some gains. But the stock market is unpredictable from month to month, so delaying taking your RMD might force you to liquidate some stocks after a pullback.
If you don't want to worry about your RMD, you could just take it early in the year and be done with it. (Note that many, if not most, good brokerages will let you automate your RMDs, taking them automatically for you at a date you specify. You might still want to double-check to make sure that the RMD has been withdrawn on time.)
Above all, don't be late taking your RMD. The penalty for not taking it on time is 25% of the amount you failed to withdraw on time.
