Will RMD reduce savers credit?

[wc158]

will RMD be treated as normal distribution from IRA which reduce savers credit?

[Hal_Al · Accepted solution]

Q.  Will RMD reduce savers credit?

A. Yes, and may well eliminate it. So, yes, an RMD is treated as normal distribution from IRA which reduces savers credit.

First, any distribution, from any retirement plan, will effect the calculation of the savers credit. 

You, or your spouse, must  not have taken money out of a retirement account (including drawing a pension) in the last three years. See lines 4&5 on form 8880. https://www.irs.gov/pub/irs-pdf/f8880.pdf

In addition, the additional income from the RMD counts toward your AGI (line 11 of form 1040) and affects the calculation of the savers credit. See the table on  Form 8880.

[dmertz · Accepted solution]

If the deadline to complete the RMD is December 31, 2023, you don't have much choice but to complete the RMD to avoid an excess-accumulation penalty.   Intentionally delaying such an RMD and completing it early in 2024, thus incurring a 10% excess accumulation penalty, might only make sense if the penalty would be less than the amount of 2023 Retirement Savings Contributions Credit that would be lost by taking the RMD in 2023.  Intentionally taking the RMD late would not qualify for waiver of the excess accumulation penalty because the delay could not be considered to be a reasonable error.

If 2023 is your first year for RMDs that makes your required beginning date for RMDs is April 1, 2024, you can delay the 2023 RMD until as late as April 1, 2024 without penalty.

Taking your 2023 RMD in 2024 would mean that it is 2024 income that would add to your other 2024 income, including your 2024 RMD that is due to be completed by December 31, 2024, so to do a comprehensive evaluation to see if delaying taking the RMD makes sense you'll want to compare your 2024 marginal tax rate to your 2023 marginal tax rate on this RMD.