RMD Question

[street]

So below is the table for 2017 RMD estimator. So for an example if you would have 2.5M in deferred funds at age 701/2 you would need to take out about 91K for that first year? Now it looks like each year the % you need to take out legally goes down. Is that correct? Thanks
https://personal.vanguard.com/us/insights/retirement/estimate-your-rmd-tool

 

[MissMolly]

Actually, the percentage you have to remove increases each year, so depending on the amount remaining at each year end, it could be more or it could be less.

 

[youbet]

Nope. Your life expectancy factor goes down. RMD's don't work in "percents." But you could note that as the life expectancy factor goes down, it amounts to the percent of the prior year's ending balance going up.

 

[meierlde]

Here is a link to the IRS publication. https://www.irs.gov/publications/p590b/index.html Note the tables at towards the end of the page, The first is for those who inherit an IRA/401, the second is for where one spouse is more that 10 years younger than another and the 3rd is for all others, Note the tables give the divisor to use in calculating the RMD for example the age 70.5 factor is 27.4 so you take the prior dec 31 balance and divide by 27.7 to get the RMD. How fast the amount increases really depends on what the account is earning. Note the first year is a bit less than 4% so if you get 4% the balance will increase.

 

[street]

So I didn't think right on that but yes for age 71 the divider would 26.4 and yes that would increase as I age. I didn't run the numbers I just seen a lower Life Expectancy Factor and assumed it would be less. Lol So the for example 1M first year 36K and second year at age 71 it with 1M it would be 37K. So yes I see it goes up if funds would stay the same.

 

[kaneohe]

So I didn't think right on that but yes for age 71 the divider would 26.4 and yes that would increase as I age. ............................................

I suspect you understand this now and didn't mean to write what you did.........
the divisors Decrease as you age which is what can lead to increases in
RMDs.

 

[street]

Thanks so much I do see my mistake and for today I do understand what is coming for me. Lol

Thank you!

 

[pb4uski]

So below is the table for 2017 RMD estimator. So for an example if you would have 2.5M in deferred funds at age 701/2 you would need to take out about 91K for that first year? Now it looks like each year the % you need to take out legally goes down. Is that correct? Thanks
https://personal.vanguard.com/us/insights/retirement/estimate-your-rmd-tool

No it actually goes up as a percentage because the amounts in the table are a denominator... you take your remaining balance and divide by the years from the table.

So for the first year $2,500/27.4 = $91k (3.6%)
Assuming no growth... for the second year $2,409/26.5= $91k (3.8%)
Assuming no growth... for the third year $2,318/25.6= $91k (3.9%)
Assuming no growth... for the fourth year $2,227/24.7= $90k (4.0%)

 

[Sunset]

So while the percentage you have to take out goes up, if you really have $2.5 M , then it's probably going to go up in value for the next year, (at 5% and take out first year) to roughly $2,534,000

So at age 71 you take out about: $95,6xx

My numbers are slightly off, but as you can see, the amount will increase quickly for two reasons, your age and growth of investments.

Of course this is in addition to your SS.

This is why people like to convert IRA/401K to ROTH to avoid some of the tax torpedo.