Homeowners researching RMDs Chicago residents often ask about one thing above all else. How do required withdrawals from a retirement account interact with the income from selling a home? Both events can land in the same tax year. Understanding how they stack together matters more than most people realize.
What a Required Minimum Distribution Actually Is
A required minimum distribution is a mandatory withdrawal from certain retirement accounts. According to the Internal Revenue Service, you generally must start these withdrawals at age 73. This applies to a traditional IRA, SEP IRA, SIMPLE IRA, or workplace retirement plan. You can always withdraw more than the minimum. You cannot withdraw less.
These withdrawals count as taxable income in the year you take them. Roth IRAs work differently. They carry no RMD requirement for the original owner during their lifetime.
Many homeowners assume RMDs are a small, routine detail. For some, they are. For others with larger retirement balances, an RMD alone can add tens of thousands of dollars to a single year’s taxable income. That single detail is often the piece missing from an otherwise careful home sale timeline.
When RMDs Start and How They Are Calculated
Your first RMD deadline falls on April 1 of the year after you turn 73. Every RMD after that must come out by December 31 of that same year. Waiting until April for your first withdrawal creates a second RMD due that same December. This means two withdrawals landing in one calendar year, not one.
According to Charles Schwab, the calculation starts with your account balance as of December 31 of the prior year. That balance gets divided by a distribution period the IRS publishes based on your age. A larger account balance produces a larger required withdrawal. This calculation resets every single year.
According to FINRA, missing an RMD deadline carries a real cost. The IRS can charge an excise tax on the amount you should have withdrawn but did not. That penalty can drop significantly if you correct the mistake within two years of the missed deadline.
Why RMDs Matter During a Home Sale Year
Selling a home and taking a required distribution in the same year can push your total taxable income higher than either event would on its own. This matters even when your home sale gain falls entirely within the Section 121 exclusion. Your RMD still counts as ordinary income regardless of what happens with the house.
Fidelity notes that this additional income can affect more than your tax bracket. It can also influence taxes on your Social Security benefit. It can raise the cost of your Medicare premium the following year.
A related consideration is IRMAA, the income-based surcharge that raises Medicare premiums once income crosses certain thresholds. Stacking an RMD on top of home sale proceeds in the same year is exactly the kind of income spike that can trigger it.
None of this means you should avoid selling in a year you also owe an RMD. It means the timing deserves a real conversation before either transaction closes, not after.
Strategies Worth Discussing With a Professional
A few strategies can help manage this overlap. None of them fit every situation. Some homeowners consider taking their RMD earlier in the year, before a home sale closes. This gives them a clearer picture of total income before finalizing a closing date.
Others explore a qualified charitable distribution. This allows IRA owners age seventy and a half or older to send RMD funds directly to a qualified charity. That donated amount can count toward the RMD requirement without adding to taxable income at all.
Roth conversions offer another path, though they work best when planned years in advance. This strategy involves converting some tax-deferred savings into a Roth account before RMDs begin. You pay tax on the conversion now in exchange for smaller mandatory withdrawals later. Doing this during the same year as a home sale usually adds complexity rather than solving it.
None of these strategies should be chosen without guidance from a CPA or financial advisor who can see your complete tax picture. What works well for one homeowner’s income and account balances may work poorly for another.
What This Looks Like in Practice
Picture a homeowner turning 74 who plans to sell a family home this year. Their RMD alone might add twenty or thirty thousand dollars of taxable income. Now add proceeds from a home sale, even one that qualifies for the full Section 121 exclusion on gain. The combined income for that year could look very different from a typical year.
This does not mean the home sale itself becomes taxable in some new way. It means the RMD income sits alongside the home sale in the same tax return. Together, they shape which tax bracket applies. They influence whether Social Security becomes more taxable. They determine whether Medicare premiums shift the following year.
I encourage every homeowner planning both a retirement account withdrawal and a home sale in the same year to bring both numbers to a tax professional together. Treating them as two separate conversations misses how closely they interact.
Questions Worth Asking Before You Sell
A few questions can guide that conversation. Would shifting the closing date to January change which tax year absorbs the gain? Does taking your RMD earlier or later in the year change your total picture? Would a qualified charitable distribution reduce taxable income enough to matter this year specifically?
None of these questions have a universal answer. They depend on your account balances, your other income sources, and your specific tax situation for that year.
How This Connects to Illinois Property Considerations
Homeowners in Illinois often carry additional financial pieces alongside RMDs and a home sale, including property tax obligations and any senior exemptions already in place. A jump in taxable income from an RMD and a home sale in the same year does not typically affect property tax exemptions directly, since those programs usually key off age and residency rather than income. Still, understanding your full income picture for the year helps clarify what other financial moves make sense alongside the sale itself.
This is another reason a single conversation covering the RMD, the home sale, and any other moving pieces tends to produce better guidance than addressing each one separately.
A Simple Way to Start the Conversation
Before meeting with a tax professional, gather a few basic numbers. Know your approximate RMD amount for the year. Estimate your expected gain from the home sale after any exclusion. Know roughly what other income you expect, including Social Security and any pension payments.
Bringing these three figures to one conversation, rather than discussing the home sale and the retirement account separately, gives a tax professional the full picture needed to plan around both events at once.
As an SRES®, I often get asked whether it’s worth meeting with a financial advisor before making a decision about a home sale. If you’ve never had that first meeting, there’s a one-page guide covering what to expect, from what documents to bring to how often you’ll stay in touch afterward. It’s a free sign-up: What to Expect When You Meet With a Financial Advisor.
What This Means for Your Home Sale Timeline
RMDs and home sales are two separate financial events. They do not exist in separate tax years just because they involve different types of assets. Planning around both at once, with the right professional guidance, can prevent a surprise at tax time. It may also open up strategies that would not be available if the two decisions were made in isolation.
Getting this right starts with a conversation early in the year. Have it well before a closing date gets set or a distribution gets requested. A little planning at the start of the year can prevent a tax surprise that only becomes visible when the return gets filed the following spring. Two events that feel separate on the calendar can shape the same tax return more than most homeowners expect.
If you’re weighing what comes next for your home, the free resource library has practical guides covering every aspect of later-life housing, from downsizing and aging in place to senior living options, care alternatives, and the resources you need to make confident decisions. And if you would like to understand how I work with homeowners over 50, the Homeowners 50+ page is the right place to start.
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Disclaimer: This blog is for educational purposes only and does not constitute tax, legal, or financial advice. Every homeowner’s situation is unique. Please consult a qualified CPA, tax advisor, or estate attorney before making any decisions related to the sale of your home.
If you’re starting to think about what comes next, you don’t have to figure it out on your own. Sometimes it helps just to talk things through.
You can always take the next step at your own pace, with no pressure and no expectations. I’m always happy to help you get a clearer picture of your options.
Michelle Williams is a REALTOR® and SRES® serving Chicago and the South Suburbs, helping homeowners 50+ make confident decisions about their next move.