Annual RMD Amounts

[PERSonalTime]

When annual withdrawals are started for RMDs from IRAs or 401ks, are the amounts the same every year or do they changes?

 

[REWahoo]

The % that must be withdrawn increases each year.

Here is a table showing the approximate percentage of your IRA that must be withdrawn each year: RMD - Required Minimum IRA Distribution

 

[audreyh1]

Are the RMD% applied to the IRA amount on Dec 31 of the prior year?

For example, if you turn 70 1/2 in 2025, say. Is the first RMD calculation based on the total value of your IRAs on Dec 31 2024? And you can then decide when during 2025 to take it?

I know that for the first year you have until April 1 of the following year (2026 in this example) to take it. But since you also have to take an RMD for 2026 by the end of 2026, taking two RMDs in the same year does not seem wise.

 

[papadad111]

Following this. My mom has a few small IRA's and has reached RMD age. Need to make minimum withdraws I assume... How is this handled when funds inside Ira are in annuities ?

 

[REWahoo]

Are the RMD% applied to the IRA amount on Dec 31 of the prior year?

I'm not quite there yet, but yes, this is how I understand it works.

http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Required-Minimum-Distributions#4

 

[braumeister]

Are the RMD% applied to the IRA amount on Dec 31 of the prior year?

Exactly right.
IRS Pub 590 has the tables to use.

 

[audreyh1]

Thanks!

So on Jan 1, within one or more IRAs you might be wise to set aside what you have to take out during the year.

Fidelity allows withdrawals "in kind" - you can withdraw securities, mutual fund shares, etc. - not just cash. I'm sure other companies do. The basis is established as the value of the security the day you withdraw it. Equivalent to selling it inside the IRA, withdrawing cash, and buying it again the same day - although in the latter case you have to be careful not to inadvertently run into wash rule violations.

 

[kaneohe]

Following this. My mom has a few small IRA's and has reached RMD age. Need to make minimum withdraws I assume... How is this handled when funds inside Ira are in annuities ?

IRA Help: Immediate Annuities Impact on RMDs? | Financial Planning

https://go.standard.com/annuities/eforms/11334.pdf

If not annuitized yet, same as with "normal" IRAs. If annuitized, supposedly the amounts are supposed to be >= normal RMDs so no additional withdrawals need to be made from the annuities.

 

[Amethyst]

If the age difference between spouses > 10 years, the amount is reduced (different IRS table).

Also, if the IRA's are with different financial institutions, you need to instruct ALL the institutions in writing: "Do NOT distribute; I am taking my RMD from another institution" + "Please send my 2014 RMD in the amount of $XXXX. Please withhold XX% for Federal and XX% for State/Local income tax."

If you don't instruct, they will all send you checks based on a presumed allocation, and you don't want that because you will incur taxes on every single check!

Amethyst

 

[JustCurious]

If the age difference between spouses > 10 years, the amount is reduced (different IRS table).

I hate to be technical about this, but the amount is only reduced if your spouse is > 10 years younger than you. If the age difference results in your spouse being > 10 years older, the amount is not reduced. Also, the younger spouse must be the sole beneficiary.

 

[Amethyst]

Thanks - you are quite right. I am so used to being the spouse who figures all this stuff out, that my answer was rather self-centered.

Amethyst

I hate to be technical about this, but the amount is only reduced if your spouse is > 10 years younger than you. If the age difference results in your spouse being > 10 years older, the amount is not reduced. Also, the younger spouse must be the sole beneficiary.

 

[kaneohe]

....................................

Also, if the IRA's are with different financial institutions, you need to instruct ALL the institutions in writing: "Do NOT distribute; I am taking my RMD from another institution" + "Please send my 2014 RMD in the amount of $XXXX. Please withhold XX% for Federal and XX% for State/Local income tax."

If you don't instruct, they will all send you checks based on a presumed allocation, and you don't want that because you will incur taxes on every single check!

Amethyst

ymmv, I suppose, but my experience is just the opposite.......they all mail informational material so that you can't yell at them and say you didn't know but the default seems to be if we don't hear from you, we aren't doing anything. To me that seems to be, for the banks, the wiser choice to avoid people yelling at them because they took the whole RMD from one bank but also had the other banks pulling out the RMDs on their own.

For 401Ks where you have to pull RMDs from each 401K, the default in my limited experience, is that if you give no direction, the institution will distribute the RMD on its own to save you . Since you can't aggregate 401Ks like you can IRAs, this seems to be a good thing.

 

[kaneohe]

Thanks!

So on Jan 1, within one or more IRAs you might be wise to set aside what you have to take out during the year.

Fidelity allows withdrawals "in kind" - you can withdraw securities, mutual fund shares, etc. - not just cash. I'm sure other companies do. The basis is established as the value of the security the day you withdraw it. Equivalent to selling it inside the IRA, withdrawing cash, and buying it again the same day - although in the latter case you have to be careful not to inadvertently run into wash rule violations.

Is this wash sale possible? I know the opposite is.....if you sell in taxable for a loss and then buy in IRA too soon, you can create a wash sale. But if you sell first in IRA, you can't sell for a loss since there is no basis so buying too soon in taxable would not create a wash sale?

 

[Rustward]

Thanks!

Fidelity allows withdrawals "in kind" - you can withdraw securities, mutual fund shares, etc. - not just cash. I'm sure other companies do. The basis is established as the value of the security the day you withdraw it. Equivalent to selling it inside the IRA, withdrawing cash, and buying it again the same day - although in the latter case you have to be careful not to inadvertently run into wash rule violations.

I can't think of a way to violate a wash sale rule by taking a distribution from an IRA unless you are talking about nondeductible contributions to the IRA (of which we have a few -- very few), but I see how it could be theoretically possible in that particular case. If all the IRA money was tax deductible when it was contributed, then the basis in the IRA investments for the purpose of any sale is $0 and the whole distribution is taxed as ordinary income. Does it matter what you do with the distribution (buy more of the securities you held in the IRA)? I think one of the first tests for the wash sale rule is to have sold at a loss. No basis, no loss.

We have never taken any IRA distributions, so we have no background in that area yet.

 

[audreyh1]

Is this wash sale possible? I know the opposite is.....if you sell in taxable for a loss and then buy in IRA too soon, you can create a wash sale. But if you sell first in IRA, you can't sell for a loss since there is no basis so buying too soon in taxable would not create a wash sale?

All my IRA positions show me a non-zero cost basis. So I don't think it's correct to say there is "no basis" even if you aren't taxed on transactions within the IRA. I would go out of my way to avoid selling at a loss in my IRA and buying outside within 30 days even if I can't declare the loss for tax purposes. It just seems to venture too closely into a gray area, even though the IRS ruling involved the opposite scenario. The fact exists that wash sale rules apply across all accounts (including joint) would make me want to keep things very clean by transferring in kind rather than selling in one account and buying in another.

 

[audreyh1]

I can't think of a way to violate a wash sale rule by taking a distribution from an IRA unless you are talking about nondeductible contributions to the IRA (of which we have a few -- very few), but I see how it could be theoretically possible in that particular case. If all the IRA money was tax deductible when it was contributed, then the basis in the IRA investments for the purpose of any sale is $0 and the whole distribution is taxed as ordinary income. Does it matter what you do with the distribution (buy more of the securities you held in the IRA)? I think one of the first tests for the wash sale rule is to have sold at a loss. No basis, no loss.

We have never taken any IRA distributions, so we have no background in that area yet.

An IRA withdrawal is not treated on schedule D, so "basis" doesn't come into the tax treatment. I don't think you can infer from that that there is no basis, just because it's not treated as a capital gain or loss. I just wouldn't want to inadvertently tiptoe into that area since wash sales take IRAs into account.

 

[kaneohe]

All my IRA positions show me a non-zero cost basis. So I don't think it's correct to say there is "no basis" even if you aren't taxed on transactions within the IRA. I would go out of my way to avoid selling at a loss in my IRA and buying outside within 30 days even if I can't use the loss for tax purposes. It just seems to venture too closely into a gray area, even though the IRS ruling involved the opposite scenario. The fact exists that wash sale rules apply across all accounts (including joint) would make me want to keep things very clean by transferring in kind rather than selling in one account and buying in another.

I would guess that the non-zero cost basis reporting is an artifact of using taxable account software for tax deferred accounts (in TIRA case) and perhaps the fund companies leave it there to remind you if you have been successful or not with that investment. Rustward reminded me that you can have basis in the IRA from non-deductible contributions but that basis is associated with the whole TIRA and not particular securities. No harm in being safe I guess if you can accomplish your goal w/ in-kind distributions.

I will ask Alan S. at fairmark.com what he thinks.

 

[Rustward]

There are two distinct contexts for the word "basis".

I'll quote a couple of references:

1) Basis Definition | Investopedia see #3
"
1. The variation between the spot price of a deliverable commodity and the relative price of the futures contract for the same actual that has the shortest duration until maturity.

2. A security's basis is the purchase price after commissions or other expenses. Also known as "cost basis" or "tax basis".

3. In the context of IRAs, basis is the after-tax balance in the IRA, which originates from nondeductible IRA contributions and rollover of after-tax amounts. Earnings on these amounts are tax-deferred, similar to earnings on deductible contributions and rollover of pretax amounts.
"

2) Publication 590 (2013), Individual Retirement Arrangements (IRAs)
"
Distributions Fully or Partly Taxable

Distributions from your traditional IRA may be fully or partly taxable, depending on whether your IRA includes any nondeductible contributions.

Fully taxable. If only deductible contributions were made to your traditional IRA (or IRAs, if you have more than one), you have no basis in your IRA. Because you have no basis in your IRA, any distributions are fully taxable when received. See Reporting and Withholding Requirements for Taxable Amounts , later.

Partly taxable. If you made nondeductible contributions or rolled over any after-tax amounts to any of your traditional IRAs, you have a cost basis (investment in the contract) equal to the amount of those contributions. These nondeductible contributions are not taxed when they are distributed to you. They are a return of your investment in your IRA.
"

If you see something called "basis" for individual securities on your IRA statements, it may be what you paid for those investments, but what you paid really has no meaning for tax purposes if you contributed pre-tax money. It could also mean that you made after tax contributions to your IRA. You may want to ask your broker for an explanation.

However, "basis" on your IRS form 8606 is capital that you contributed to the IRA after tax, and will not be taxed when you take a distribution of it.

 

[kaneohe]

Here is Alan S.' response: Fairmark Forum :: Retirement Savings and Benefits :: Wash Sale Taxable Account & IRA

Re: Wash Sale Taxable Account & IRA
Posted by: Alan S., December 3, 2014 03:08AM
Kaneohe, selling in an IRA does not create a wash sale because there are no capital losses in an IRA that the IRA owner can claim. Custodians who track gains or losses on individual investments in an IRA are just offering that to help the IRA owner determine investment results.

Alan S. posts on the fairmark.com, bogleheads.org, and irahelp.com sites.
It is interesting to me that zillions of us who know much less than he does can come to the same conclusion that he knows more than us and that he is correct even though we know so little.

 

[haha]

Excellent answers in this thread!

Ha

 

[Sunset]

Following this. My mom has a few small IRA's and has reached RMD age. Need to make minimum withdraws I assume... How is this handled when funds inside Ira are in annuities ?

I have no idea how annuities are handled when within an IRA.
However, I wanted to emphasize your mom must take RMD (if they apply) because failure to take RMD is tax bill of 50% of what should have been taken, plus you still have to take it out (and be taxed again on the withdrawl).

 

[audreyh1]

Here is Alan S.' response: Fairmark Forum :: Retirement Savings and Benefits :: Wash Sale Taxable Account & IRA

Re: Wash Sale Taxable Account & IRA
Posted by: Alan S., December 3, 2014 03:08AM
Kaneohe, selling in an IRA does not create a wash sale because there are no capital losses in an IRA that the IRA owner can claim. Custodians who track gains or losses on individual investments in an IRA are just offering that to help the IRA owner determine investment results.

Alan S. posts on the fairmark.com, bogleheads.org, and irahelp.com sites.
It is interesting to me that zillions of us who know much less than he does can come to the same conclusion that he knows more than us and that he is correct even though we know so little.

Thanks for that reference!

 

[Amethyst]

It happened to us (getting RMD distro's we didn't ask for and didn't want). We are the only couple we know who have both an RMD'er and an age-different spouse, so again, I can only speak from personal experience.

A.

ymmv, I suppose, but my experience is just the opposite.......they all mail informational material so that you can't yell at them and say you didn't know but the default seems to be if we don't hear from you, we aren't doing anything. .

 

[donheff]

I have no idea how annuities are handled when within an IRA.
However, I wanted to emphasize your mom must take RMD (if they apply) because failure to take RMD is tax bill of 50% of what should have been taken, plus you still have to take it out (and be taxed again on the withdrawl).

When I researched SPIAs years ago I remember finding that some IRS rule allows annuitizing to count for RMDs for the amount converted to an annuity. The annuity payment is taxable income just like an IRA withdrawal. You will need to find the rule yourself, consult an accountant, or probably just check through the IRA custodian. Trusting my memory would be foolish.

 

[kaneohe]

It happened to us (getting RMD distro's we didn't ask for and didn't want). We are the only couple we know who have both an RMD'er and an age-different spouse, so again, I can only speak from personal experience.

A.

.......so did you donate a piece of your mind to them and tell them how delighted you were so that you could leave this world a better place? and are they still doing it?