What Happens If I Take a Bigger RMD?
At age 72, the IRS mandates minimum distributions from IRAs and tax-deferred retirement accounts. Most people withdraw only the required minimum amount, but this strategy isn’t always optimal. Taking larger distributions can sometimes yield better long-term financial outcomes.
Key Scenarios
Bill and Betty’s Example
The couple has combined retirement income of approximately $119,000 annually. Bill’s IRA RMD is $37,118. They could withdraw an additional $65,000 before entering the 24% tax bracket. Since Betty will begin her own RMDs next year from a $1.5 million IRA, strategically maximizing this year’s 22% bracket reduces future tax burdens.
Alan’s Situation
At 81 with a $1.3 million IRA, Alan can use $30,000 for charitable contributions via a Qualified Charitable Distribution. He could withdraw another $22,000 at his 12% marginal rate. Since his daughter has substantial income, taking more now prevents pushing her into higher brackets during her beneficiary distribution years.
Four Critical Considerations
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Tax Bracket Assessment – Calculate remaining room in your current tax bracket before hitting higher rates
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Future Income Projections – Account for spouse IRAs, inherited accounts, or annuity income arriving next year
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Beneficiary Tax Situations – Compare your rates against heirs’; large inheritances could significantly increase their tax liability
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Medicare Premium Impact – Recognize that additional income triggers higher Part B and D premiums in subsequent years
Conclusion
Strategic RMD planning requires examining the complete financial picture rather than simply taking minimum amounts. Shortsighted approaches can prove costly for both retirees and their beneficiaries.
If you or a loved one needs assistance with retirement planning or estate planning, do not hesitate to contact The Stegall Law Firm to book a consultation. We are here to help.
