* IRA withdrawals are usually taxable income. Rates up to 35 percent now apply. If income tax rates rise in the future, as many people expect, the tax on IRA withdrawals may become greater.
* Taxable IRA withdrawals boost your adjusted gross income (AGI), and a higher AGI can have negative consequences elsewhere on your tax return. You might owe more tax on your Social Security benefits, for instance.
For many people, it’s wise to take your first RMD in the year you reach age 70 1/2. Waiting until the following year and taking two RMDs in that year could push you into a higher tax bracket.
One other option is to convert your traditional IRA to a Roth IRA. You’ll owe tax now but you’ll be able to take tax-free withdrawals after five years and after age 59 1/2. Moreover, you’ll never have to take RMDs from a Roth IRA you’ve established.