Before taking your first required minimum distribution, it's important to understand the rules and implications.

• Starting in 2023, most retirees will be obligated to withdraw a minimum amount from their pre-tax retirement accounts annually, known as required minimum distributions (RMDs), when they turn 73.
• The first withdrawal deadline is on April 1 after turning 73, and the subsequent deadline is on December 31.
• Experts advise considering tax implications when timing your first RMD.

Eventually, after accumulating funds in retirement accounts for many years, you will be required to withdraw a minimum amount each year, known as RMDs. Financial experts advise that the first RMD can be challenging to calculate and plan for.

Beginning in 2023, most retirees must start taking required minimum distributions (RMDs) at age 73. The initial deadline is April 1 of the year following your 73rd birthday, with subsequent deadlines on December 31 for future withdrawals. This rule applies to tax-deferred individual retirement accounts, including most 401(k) and 403(b) plans.

Jim Guarino, managing director at Baker Newman Noyes in Woburn, Massachusetts, and a certified public accountant, advised that being tactical and savvy is important when taking the first distribution.

Withdrawals from retirement accounts before taxes are subject to regular income tax. In contrast, capital gains tax rates of 0%, 15%, or 20% apply to assets held in a brokerage account for over a year.

Two required withdrawals in one year

If you wait until April 1 after turning 73 to take your first RMD, you will still owe the second one by December 31. This means you will take two RMDs in the same year, which can significantly increase your adjusted gross income.

According to CFP Abrin Berkemeyer, a senior financial advisor with Goodman Financial in Houston, there is a possibility of triggering unexpected tax consequences.

The implementation of boosting AGI can result in income-related monthly adjustment amounts, or IRMAA, for Medicare Part B and Part D premiums. For 2024, IRMAA will be applicable once the modified adjusted gross income, or MAGI, exceeds $103,000 for single filers or $206,000 for married couples filing together.

Berkemeyer stated that the largest surprise for retirees is that one.

If retirees have a higher AGI, they may face higher Social Security taxes or a higher long-term capital gains tax bracket of 15%, according to him.

When to defer your first distribution

Experts suggest delaying your first RMD until April 1, 2025, if you're 73 and retired in 2024, as 2025 may be a lower-income year.

Your RMD is calculated using your pre-tax retirement balance as of December 31 from the previous year, meaning 2025 RMDs are based on year-end 2024 balances. The calculation divides your previous year-end pretax balance by an IRS life expectancy factor.

If your portfolio went through the roof in 2024, you could expect a larger-than-expected RMD for 2025, Guarino warned.

To determine whether it is financially feasible to increase income in 2024 or 2025, it is necessary to analyze account balances and tax projections, as he advised.