Deferring first RMD: tax and benefit consequences

What happened: Starting at age 73, IRA holders must begin taking Required Minimum Distributions (RMDs). Deferring the first RMD to April 1 of the following year results in two RMDs being taken in the same tax year, potentially doubling retirement income for that year. For instance, a $900,000 IRA holder could see an additional $70,000 in income. However, this could push retirees over the IRMAA (Income-Related Monthly Adjustment Amount) threshold, increasing Medicare premiums. Additionally, it might reduce Social Security benefits by increasing taxable income.

Market impact: This narrative primarily affects retirees and those nearing retirement, particularly Baby Boomers with significant retirement savings. The average 65-year-old has $267,900 in workplace retirement plans, making them susceptible to these changes. Financial advisors and retirement planning services may see increased client inquiries regarding RMD strategies.

What to watch next: The IRS's annual inflation adjustments for tax brackets and IRMAA thresholds, typically announced in October, will determine how many retirees are affected. Additionally, the IRS's guidance on RMDs for 2023, expected in late 2022, may provide clarity on potential changes to RMD rules.