RMD Tips for Retirees Taking Their First Required Minimum Distributions

First-timers get a special grace period, but doubling up distributions in one year can lead to a bigger-than-expected tax bill.

Mature couple with documents and notebook
(Image credit: Iakov Filimonov)

I turned 70½ in 2015, and I know that I have to take my first required minimum distribution from my IRA by April 1, 2016. Do I need to take another RMD by the end of this year? Is there anything I can do to reduce the tax bill if I have to take two RMDs in the same year?

Generally, you must take your required minimum distributions by December 31 every year. But for your first RMD, you may wait until April 1 of the year after the year you turn age 70½. However, you must also take a second RMD (the one for age 71) in the same year by December 31.

Taking two RMDs in one year, as you are doing, could cause you to have an unexpectedly large taxable income for the year. That could bump you into a higher tax bracket. It could also affect the amount of your Social Security benefits that are subject to taxes.

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Also, if your adjusted gross income plus tax-exempt interest income rises above $85,000 if you’re single (or $170,000 if married filing jointly), you pay more for Medicare premiums: a total of $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. See How Much Will Your Medicare Premiums Cost in 2016? for more information about the surcharge and when you can contest it.

The IRA RMD you are taking April 1 is based on the balance in your traditional IRAs as of December 31, 2014, and your second RMD this year is based on the balance in your IRAs as of December 31, 2015. However, you can still reduce the taxable amount for 2016 by making a tax-free transfer to charity of up to $100,000 from your IRA anytime during the year (it’s too late to make a tax-free transfer for your 2015 RMD). The amount counts as your RMD for the year but isn’t included in your adjusted gross income. The law permitting such transfers has been extended permanently, so you no longer need to wait for Congress to approve it at the end of each year before taking action. Contact your IRA administrator and the charity for more information about the steps to take to make the transfer.

Kimberly Lankford
Contributing Editor, Kiplinger's Personal Finance

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.