Question on RMDs

[WeedWatcher]

My birthday is at the end of August, so my first RMD would be taken by the following year, the year in which I turn 70.5. MUST I take two in that following year or may I take one the same year in which I turn 70 and have it count as the first RMD?

I am trying to avoid having two in the same year if at all legally possible, so I don't have too much taxable income one year.

Thank you in advance. This whole thing seems confusing to me, I don't know why. I guess I am afraid of doing things wrong and incurring a huge penalty.

 

[REWahoo]

https://www.irs.gov/retirement-plan...qs-regarding-required-minimum-distributions#3

You must take your first required minimum distribution for the year in which you turn age 70½. However, the first payment can be delayed until April 1 of the year following the year in which you turn 70½. For all subsequent years, including the year in which you were paid the first RMD by April 1, you must take the RMD by December 31 of the year.

No need to take two distributions in a single year.

 

[misanman]

The rmd process starts the year you turn 70.5. So that would be your first year and it is done on a per year basis. I believe you can delay paying the first one until early the following year but that's not something I would do.

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[Souschef]

It can get tricky,depending what month your birthday falls in. I was bron in May, so I was 70.5 in November, and I took my first RMD that year. My wife was born in December, so she would have been 70.5 in June, andd 71 in December, making 2 distributions.

 

[braumeister]

she would have been 70.5 in June, andd 71 in December, making 2 distributions.

No, actually her first RMD would be in the year she turned 70.5.
The next RMD would be the following year; turning 71 has nothing to do with it.

 

[REWahoo]

It can get tricky,depending what month your birthday falls in. ....My wife was born in December, so she would have been 70.5 in June, andd 71 in December, making 2 distributions.

Not tricky at all. See the quote from the IRS website in post #2 above.

I have a December birthday and will turn 70.5 next June. I take my first RMD next year, and then one each subsequent year.

 

[W2R]

From what REWahoo quoted above in post #2, it sounds to me like Weedwatcher doesn't have to withdraw an RMD twice in one year.

I will be 70+1/2 in December, 2018. So, that makes it simpler I suppose. I'll be withdrawing an RMD in 2018, another in 2019, and so on.

 

[ziggy29]

Simple. It's one per year, starting in the year you turn 70.5. It's that simple in most cases.

I'll be 70 1/2 in April 2036 (God willing). So that will be the first year I am required to take an RMD. I don't have to take another one in 2036 even though I'd turn 71 later that year. One per year starting with the year in which you turn 70 1/2. That said, we will probably be taking distributions from it before then, but you never know.

 

[ERD50]

So what's up with 70.5? Who ever measures age in half year increments?

And doesn't the IRS have some crazy rule about people born on Jan 1?

No one else does this for anything, your birthday is your birthday, and age is measured in years - why is it different in these cases?

-ERD50

 

[Koolau]

So what's up with 70.5? Who ever measures age in half year increments?

And doesn't the IRS have some crazy rule about people born on Jan 1?

No one else does this for anything, your birthday is your birthday, and age is measured in years - why is it different in these cases?

-ERD50

Actually, it used to be (and probably still its) that insurance companies considered you the next year's age at the previous age plus 6 months. SO using the RMD scenario, when you turn 70 1/2, the insurance company considers you (for the purpose of underwriting/actuarally) to be 71. No reason, just their, er, uh, "policy." YMMV

 

[RobbieB]

It's just like penalty free IRA at yes, fifty-nine and a half.

 

[Koolau]

Oh, while we are on the subject of RMDs (next year I'll reach 70 1/2) do most (or all) IRA/401(k) etc. company send a statement stating 1) Dec. 31 balance in qualified plans 2) how much you will owe based on age/gummint RMD factor 3) other My guess is they only send the balance and you have to figure out the amount to withdraw, but I was hoping... Of course, since there are permutations of the system (like a much younger spouse...) it probably makes more sense just to send the info on balance as of Dec. 31.

Anyone know any more detail than this??

Thanks in advance. So looking forward to this time in my life when I get to pay back my generous uncle for all his kindness, blah, blah, blah....

 

[REWahoo]

Both USAA and Vanguard will compute it for you. Don't know about others but can't imagine it isn't available from other major financial institutions.

 

[ERD50]

Both USAA and Vanguard will compute it for you. Don't know about others but can't imagine it isn't available from other major financial institutions.

Fidelity does as well (I help manage this for my MIL). I think I even saw this computed for my Mom, from her home town small bank IRA.

If you don't have all your IRA money in one place, it will either need to be accounted for, or each calculated and withdrawn relative to the amount in that account (so the total is the same). While things were in flux for my MIL as we consolidated, Fidelity let you calculate and enter the RMDs for accounts on the outside. I'd guess all the big places offer this.

-ERD50

 

[aja8888]

Every institution I have an IRA or 401K with (4) sends me a detailed statement of the amount I am required to take as a RMD based on their year ending figures. Generally, these are sent to me around February.

 

[W2R]

The TSP makes sure that your RMD's are withdrawn:

If you do not withdraw your account balance or begin receiving payments from your account in the year you turn 70½, the TSP is required to make the required distribution to you by April 1 of the following year.
[...]
If you are already receiving a series of monthly payments from your TSP account when you turn 70½, your monthly payments will be used to satisfy the IRS minimum distributions requirement. If the total amount of your monthly payments does not satisfy the requirement, the TSP will issue a supplemental payment for the remaining amount in December.

https://www.tsp.gov/PlanParticipation/LoansAndWithdrawals/withdrawals/specialConsiderations.html#rmd

 

[Souschef]

QCD

One thing that I do is to make direct charitable donations from my IRA account. They are counted against your RMD, but you are not taxed on them.
If you normally make charitable contributions, this is a good deal.

 

[mamadogmamacat]

One thing that I do is to make direct charitable donations from my IRA account. They are counted against your RMD, but you are not taxed on them.
If you normally make charitable contributions, this is a good deal.

Thanks for that info, Souschef. I will have all my tax deferred accounts consolidated at vanguard soon (one trad IRA for rollovers and one not plus a ROTH). Is there an IRS document you can refer me to for how to document such charitable contributions?

 

[youbet]

Thanks for that info, Souschef. I will have all my tax deferred accounts consolidated at vanguard soon (one trad IRA for rollovers and one not plus a ROTH). Is there an IRS document you can refer me to for how to document such charitable contributions?

Yes, it was good that Souschef brought up the charitable contribution direct from IRA info......

But I believe that if you do your charitable giving via direct transfer from your IRA, those contributions will no longer be deductible on your taxes. Sadly, you don't get it both ways....... For example, if you now give your alma mater $5K/YR and deduct that $5k on your taxes and switch to having $5k distributed to your alma mater directly from your IRA (reducing the RMD you must take) you don't get to also deduct the $5k from your taxes. So, keep that in mind too.

 

[braumeister]

That's right. Not deductible, but the advantage to a QCD is that it won't add to your AGI. IRS Pub 590-B has the details.

How do I report a qualified charitable distribution on my income tax return?

To report a qualified charitable distribution on your Form 1040 tax return, you generally report the full amount of the charitable distribution on the line for IRA distributions. On the line for the taxable amount, enter zero if the full amount was a qualified charitable distribution. Enter "QCD" next to this line. See the Form 1040 instructions for additional information.

You must also file Form 8606, Nondeductible IRAs, if:

• you made the qualified charitable distribution from a traditional IRA in which you had basis and received a distribution from the IRA during the same year, other than the qualified charitable distribution; or
• the qualified charitable distribution was made from a Roth IRA.

 

[misanman]

That's right. Not deductible, but the advantage to a QCD is that it won't add to your AGI. IRS Pub 590-B has the details

I'm wondering if there could be another potential advantage: reduce AGI via QCD and then take standard deduction, assuming that the standard deduction is now more than itemized deductions without the charitable contribution. Is this a valid thought?

 

[RE2Boys]

Absolutely

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[kaneohe]

One other nice feature of the QCD if you have basis in your TIRA (non-deductible contributions)........the QCD comes out of the deductible contributions, thus saving your basis. Not written up in IRS pubs AFAIK but if you follow the instructions on F8606 carefully, you will do the right things tho not necessarily understanding the implication. Alan S. at fairmark.com pointed that out to me and if I think hard enough, it makes sense. You also have to be >= 70.5 at the time you make the QCD so not everything in the yr you turn 70.5 will count as QCD.

 

[kaneohe]

All of the 401Ks that I am familiar with (just 3) will not only notify you of the amount of the RMD required but have a default that if you don't take it by sometime in December, they will send it to you automatically. They can do this because 401Ks cannot be aggregated.

IRAs which can be aggregated typically only send notification of the amount of the RMD . If they are smart they will not do the default distribution because you may have taken it from another IRA. 403b are similar to IRAs since they can be aggregated with other 403bs.

 

[kaneohe]

Yes, it was good that Souschef brought up the charitable contribution direct from IRA info......

But I believe that if you do your charitable giving via direct transfer from your IRA, those contributions will no longer be deductible on your taxes. Sadly, you don't get it both ways....... For example, if you now give your alma mater $5K/YR and deduct that $5k on your taxes and switch to having $5k distributed to your alma mater directly from your IRA (reducing the RMD you must take) you don't get to also deduct the $5k from your taxes. So, keep that in mind too.

I am not aware of any cases where you can double-dip.......you can't use medical expenses to justify withdrawal from HSA and then deduct the very same expenses. But AFAIK the QCD is always better (or the same) as the deduction because 1) it reduces AGI and may reduce negative effects of AGI on credits and 2) as noted previously by another poster, your contribution may not be fully effective as a deduction if you don't exceed the standard deduction without it.