I’m 73 and starting RMDs with a $53,000 withdrawal. When will I have to pay income tax on this?

Welcome to the wild world of required minimum distributions. – Getty Images/iStockphoto

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Dear Fix My Portfolio, 

I will be turning 73 this year and will have to take out around $53,000 from my retirement accounts for an RMD. This will add about $5,000 to my tax bill for 2024. If I take the full $53,000 out today, will I have to pay the Internal Revenue Service quarterly estimated taxes of $1,250 each during tax year 2024? But if I wait until December 2024 to take out the full $53,000 will I just have to pay the $5,000 tax when filing my 2024 taxes in April 2025? I can’t seem to find the answer to this so any help would be greatly appreciated,


Dear Dave, 

Welcome to the wild world of required minimum distributions. Happy birthday, and many happy tax returns.

For some people, this is a land of rainbows and unicorns, where they happily spend the money they saved while they were working and do as they please. For others, it’s just an enormous tax headache and somewhat of an intrusion to be forced to withdraw money you may not need for living expenses, in order to finally give the government its share after years of tax-free growth.

I can’t exactly tell from your letter which camp you are in, but I’m getting a little hint of frustration about the decisions involved and how hard it is to find the information you need.

There’s some good news for you, though, in that this one isn’t as hard to figure out as it might seem at first glance (but it’s not exactly straightforward either).

Calculating your required amount to withdraw

The easy part is that the amount you are required to withdraw is a knowable quantity and won’t change no matter when or how you take the RMD. It is based on the balance of your tax-deferred accounts as of Dec. 31 of the prior year. So if that balance was $1.5 million at the end of 2023, you’d apply the IRS formula that is relevant for your case, and come up with some number close to $55,000 that you must withdraw, as you have done. Take it now, take it monthly, take it at the end of the year: There are pluses and minuses to each strategy . The only bad way is to forget to take it altogether because then you may owe stiff penalties.

Another potential plus: When you’re just turning 73, your first RMD is not due until April 1 of the following year. So you might have more time than you considered, but you can take it whenever you wish. Most people need their retirement funds for living expenses and take out what they need when they need it, often in excess of the required amount, or they find other ways to spend the money like gifts to family or charity .

The taxes due are a little more involved, because people are complicated and every tax situation is different. It’s easy to say something like you’re in the 10% tax bracket, so adding $55,000 of income would make your tax bill on that amount something like $5,500. It could end up either more or less. Your total tax burden for the year will depend on your other income, deductions and credits. Plus, you may have state taxes where you live. If that extra income pushes you above certain limits, you may end up paying more tax on your Social Security , and you may incur Medicare surcharges known as IRMAA .

Your custodian can automate your tax withdrawals

But let’s get back to the easy stuff, because you can automate this and just not think about it ever again. The custodian of your account should be able to take taxes out from any withdrawals and send you a tax statement at the end of the year – both to certify the RMD base amount from the prior year and to show the taxes withheld.

“That may be one way to help yourself stay out of hot water,” says Nilay Gandhi, a certified financial planner and senior wealth adviser at Vanguard.

If you end up paying too much in a year this way when it all tallies up on your 1040, then you can settle that on your next filing and get a refund, just like you would if you withheld too much from a paycheck.

If you choose to handle this on your own, then yes, you would owe estimated taxes throughout the year when you take distributions and you’d have to stay on top of that filing process. We all owe income tax on the periodic or lump-sum income we get, whether it’s a paycheck, Social Security or tax-deferred withdrawals, we just tend not to think about it that way. We settle up by April of the following year when our tax returns are due, and think of that as when we actually pay taxes.

One of the reasons many financial advisers steer their clients toward taking their RMDs at the end of a calendar year instead of the beginning is because of this tax issue. You know more about your overall financial situation for the year in November than you do in January.

“Measure twice, cut once,” says Gandhi.

You also get the benefit of tax-deferred growth on the amount of the RMD throughout the year. You know on Jan. 1 that you have to take out $55,000, but that could potentially earn $2,750 in interest at 5% by the end of a year. You still only have to take out that $55,000. That extra growth continues to compound tax-deferred, rather than you owing even more in taxes right away.

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