Secure 2.0 Lets Retirees Delay RMDs. That Doesn’t Mean They Should.

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The Secure 2.0 Act gives savers 72 and under an extra year before you have to withdraw money from your retirement accounts. But just because you can postpone your required minimum distribution (RMD) doesn’t mean you necessarily should, financial advisors say.

Passed late last year, the sweeping retirement law raised the age for RMDs to 73 in 2023, up from 72. Starting in 2033, the RMD age will increase to 75.

The changes most immediately affect those who turn 72 this year, who would otherwise have been required to take their RMD by April 1, 2024. (The Internal Revenue Service gives first-timers a grace period until spring of the following year; in all subsequent years, RMDs must be taken by year-end.) Your RMD is calculated by dividing your retirement account balance as of Dec. 31 of the prior year by what the IRS calls your “life expectancy factor.” The resulting amount is counted as income; you must withdraw it from your account and you’ll owe taxes on it. RMD rules apply to traditional IRAs as well as employer-sponsored retirement plans such as 401(k)s and 403(b)s.

Most Americans don’t have the luxury of waiting, since they need withdrawals from their retirement accounts to live on. But among those who can afford to wait, postponing isn’t always the best move. If you delay your RMD and your retirement account balance increases, you’ll have to withdraw a larger amount next year. (Even if your account balance stays flat, you’ll have to take out more since your life expectancy factor will be lower.) The extra income could increase not only the amount you pay in income taxes, but also your Medicare premiums down the line.

“Some of the old rules of thumb, like you should let your tax-deferred accounts marinate as long as possible, don’t always apply,” said Josh Strange, a certified financial planner and president of Good Life Financial Advisors of NOVA in Alexandria, Va.

Without a crystal ball showing how markets will perform this year, It’s impossible to say whether current 72-year-olds might benefit from deferring their RMDs a year, all other factors being equal. (Market participants polled by Barron’s expected the S&P 500 to end the year higher than its current level). But what if all other factors aren’t equal? Say you’re 72, expect to retire this year, and be in a lower tax bracket next year. In that case, postponing your RMD to 2024 would probably make sense. On the flip side, if you plan to sell…