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Inherited IRA RMD Question
Old 12-11-2019, 05:08 PM   #1
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Inherited IRA RMD Question

I was taking a look at the latest statement on an inherited IRA (held though TD Ameritrade) that I hold and noticed that the calculated RMD for this year is close to 25% of the total amount of the account value (as of 12/31/18). I am not sure where they got this number as I elected to use the life table for me, not the 5 year distribution. Obviously, I do *not* want to take out the amount they show as it would lead to a very obnoxious tax bill.

So, how does the 50% penalty work? Would TDA levy this and then I would have to take it up with the IRS or is there number just a "wag"?

Thanks for the assistance!
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Old 12-11-2019, 05:26 PM   #2
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what kind of "inherited IRA" do you have? From a spouse? Was it a stretch IRA?





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Inherited IRAs: Rules for Non-Spouses




Non-spouse beneficiaries are subject to required minimum distributions and may not treat an inherited IRA as their own. That is, they may not make additional contributions or roll over assets into or out of the inherited IRA. Taxes are not due until distributions are received.



Non-spouses may not leave assets in the original IRA and must continue to receive distributions from that account. The assets must be distributed via a lump-sum payment or transferred to an inherited IRA.


Generally, assets in inherited Roth IRAs must be distributed by the end of the fifth calendar year after the year of the original IRA owner's death unless a lifetime benefit is due.
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Old 12-11-2019, 05:31 PM   #3
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If the estate was the beneficiary (or there was no beneficiary) then the RMDs would continue to be calculated over the original owners life expectancy curve.

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Old 12-11-2019, 06:38 PM   #4
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TDA's number is probably something that they calculated for your convenience in case you don't know how to calculate RMDs properly. If you're not sure how they're calculating it, you could give them a call and ask them. Maybe they think you're 107 years old!

TDA should not levy the 50% penalty. It is not their job to enforce the IRS' rules. If you were actually subject to the 50% underwithdrawal penalty, you (or your tax preparer) would calculate it and report it on your own taxes.
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Old 12-11-2019, 07:35 PM   #5
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I turned 48 this year, and my RMDs from my inherited IRAs was about 2.78%. Fidelity makes it easy, IMO. Here's their table, you divide your balance on the first of the year by the number in the "Life Expectancy" column: https://www.fidelity.com/content/app...ancy-Table.pdf
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Old 12-11-2019, 07:43 PM   #6
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Originally Posted by The Cosmic Avenger View Post
I turned 48 this year, and my RMDs from my inherited IRAs was about 2.78%. Fidelity makes it easy, IMO. Here's their table, you divide your balance on the first of the year by the number in the "Life Expectancy" column: https://www.fidelity.com/content/app...ancy-Table.pdf
I thought you had to carry forward the RMD percentages the original retiree had been withdrawing based on their age--not based on your age.
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Old 12-11-2019, 08:45 PM   #7
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Originally Posted by Bamaman View Post
I thought you had to carry forward the RMD percentages the original retiree had been withdrawing based on their age--not based on your age.
https://www.irs.gov/retirement-plans...-beneficiaries

it's the younger of the 2 ages.
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Old 12-11-2019, 08:49 PM   #8
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Originally Posted by The Cosmic Avenger View Post
I turned 48 this year, and my RMDs from my inherited IRAs was about 2.78%. Fidelity makes it easy, IMO. Here's their table, you divide your balance on the first of the year by the number in the "Life Expectancy" column: https://www.fidelity.com/content/app...ancy-Table.pdf
only for the first yr. After that you subtract 1 from that initial number each yr.
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Old 12-11-2019, 08:55 PM   #9
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Originally Posted by Bamaman View Post
I thought you had to carry forward the RMD percentages the original retiree had been withdrawing based on their age--not based on your age.

One parent died before needing to take RMDs, the other did not, both have the same RMD percentage for me. The PDF table I linked to at Fidelity is basically the Table 1 mentioned in this IRS guidance, so that table seems to be correct.
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Old 12-11-2019, 09:17 PM   #10
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For a non-spousal tIRA the first RMD divisor comes directly from the appropriate table, which is not the normal RMD table.

After that the divisor is decreased by 1.0 each year, which is also not the normal RMD calculation.

DM is the beneficiary of an inherited non-spousal tIRA, starting when she was 87. The initial RMD divisor was 6.7 using her age. This year, at 90, the divisor was 3.7. Next year it's 2.7, then 1.7, then 0.7! So I've warned her the RMD's will stop after another three years.

I copied this from some now unknown source, though my calculations have matched Fidelity's each year:

"Distribute using Table I
Use younger of 1) beneficiary’s age or 2) owner’s age at birthday in year of death
Determine beneficiary’s age at year-end following year of owner’s death
Use oldest age of multiple beneficiaries
Reduce beginning life expectancy by 1 for each subsequent year
Can take owner’s RMD for year of death"

So it's certainly possible to have an RMD of 25% or even 100% of the value of the tIRA. I just put DM's non-spousal tIRA into all bonds so that market fluctuations don't screw us up with these gigantic RMD percentages.
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Old 12-11-2019, 09:24 PM   #11
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I hate to think about RMD's, since I'll be a young 70 on May 1st. It's especially bad since I don't have anything to do with the money.

My wife took her daughter to Europe last month with her first RMD. She decided to have a little fun with the daughter--instead of passing the money along to her later.

She told me to go buy a 2020 Corvette. I'd probably wrap the thing around a tree.
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Old 12-11-2019, 09:36 PM   #12
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Originally Posted by Bamaman View Post
I hate to think about RMD's, since I'll be a young 70 on May 1st. It's especially bad since I don't have anything to do with the money.

My wife took her daughter to Europe last month with her first RMD. She decided to have a little fun with the daughter--instead of passing the money along to her later.

She told me to go buy a 2020 Corvette. I'd probably wrap the thing around a tree.

Recall that for IRA RMDs you can give to charity and it will not appear in the magi (effecting IRRMA and medicare part B&D premiums) So if you don't know what to do with an RMD you can give to your favorite charity.
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Old 12-12-2019, 07:13 AM   #13
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She told me to go buy a 2020 Corvette. I'd probably wrap the thing around a tree.

Mine told me to buy an Alfa Romeo and a CanAm Spyder. Aren't our wives sweet? I haven't done it though. I got a Hyundai Santa Fe instead. I'm having more fun gifting the max to the 2 grown children and regularly donating to a couple of animal rescues.


Cheers!
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Old 12-12-2019, 07:59 AM   #14
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My (snake-bit) friend has an inherited IRA from his mom, who passed away in 2012. He has been taking RMDs since 2013 and they are around 3% of the IRA's ~$98k value. With his divisor still close to 30, the RMD doesn't rise much from year to year, also depending on what the IRA's value is at the start of the year.


We use the RMD as an easy way to make some estimated tax payments via Form 1099-R withholding. He doesn't need the RMD for his day-to-day expenses, so anything left over is gravy (or goes toward his annual Roth-IRA contribution).
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Old 12-12-2019, 08:07 AM   #15
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Quote:
Originally Posted by ExFlyBoy5 View Post
I was taking a look at the latest statement on an inherited IRA (held though TD Ameritrade) that I hold and noticed that the calculated RMD for this year is close to 25% of the total amount of the account value (as of 12/31/18). I am not sure where they got this number as I elected to use the life table for me, not the 5 year distribution. Obviously, I do *not* want to take out the amount they show as it would lead to a very obnoxious tax bill.

So, how does the 50% penalty work? Would TDA levy this and then I would have to take it up with the IRS or is there number just a "wag"?

Thanks for the assistance!
Are you sure you aren't looking at the divisor?

Either that, or I've got some really bad news for you regarding your life expectancy
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Old 12-12-2019, 08:20 AM   #16
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Originally Posted by scrabbler1 View Post
My (snake-bit) friend has an inherited IRA from his mom, who passed away in 2012. He has been taking RMDs since 2013 and they are around 3% of the IRA's ~$98k value. With his divisor still close to 30, the RMD doesn't rise much from year to year, also depending on what the IRA's value is at the start of the year.
I have two of them...inherited one from my grandmother in 2015, and Dad in 2017. So far, the RMDs have been low enough that the balance is still about the same. The one I got from Grandmom was only $4800, so I put it into a biotech fund with Fidelity, to take its chances. The RMDs for 2016, 2017, 2018, and 2019 have all been around $100-120 apiece, and it's still worth around $4700.

Dad's account was around $66-67K, and after two RMDs around $1700-1800, it's still around $67K.

I do remember finding an RMD calculator on Fidelity's website a few years back, and for the inherited IRAs, it looks like they were designed to deplete completely by the time I turn 84. So, I'm guessing those RMDs will start ramping up, eventually.
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Old 12-12-2019, 09:38 AM   #17
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For clarification, I am the sole beneficiary and non-spousal (elected the stretch provision, not the 5 year). If I calculate it as if the decedent was still alive (91 years old) the RMD would still be less than what they are saying it should be. At any rate, I have an email in to them to see what the issue is. I have used this calculator to see what it *should* be.

https://www.schwab.com/ira/understan...alculators/rmd
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Old 12-12-2019, 09:48 AM   #18
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Originally Posted by ExFlyBoy5 View Post
For clarification, I am the sole beneficiary and non-spousal (elected the stretch provision, not the 5 year). If I calculate it as if the decedent was still alive (91 years old) the RMD would still be less than what they are saying it should be. At any rate, I have an email in to them to see what the issue is. I have used this calculator to see what it *should* be.

https://www.schwab.com/ira/understan...alculators/rmd
That's a great tool, much easier to understand than the tables, so thanks for posting that. It jives with my recent inherited IRA RMDs as calculated by Fidelity. I'm in my late 40s, so my RMDs are still fairly low, but now I'm realizing that my income may skyrocket later on due to the ramped up RMDs. I'll have to try to plan for that, maybe draw those down first after retiring.
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Old 12-12-2019, 10:05 AM   #19
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Exactly. Why wouldn’t everyone draw down the Inherited IRAs first?
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Old 12-12-2019, 10:09 AM   #20
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Exactly. Why wouldn’t everyone draw down the Inherited IRAs first?

Probably because it's hard enough to get people to save, and if they save, to understand the power of the two-fund portfolio and not tinkering in response to an emotional reaction to ups and downs. I'm finally at the point where I feel like I've mastered those, and only now am I thinking about things like tax planning and withdrawal distribution (between accounts).
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