retired and almost 70

[chet]

i have a fidelity 401k investment, been reading that when i turn 70 1/2 the withdrawls are automatic ect, i can understand that, BUT will taxes hurt me, would it be wiser and save money by rolling it over to some other type of investment, looking for some ideas so i dont get any penalties i am not aware of.

Chet

[robertf57]

Chet,

If it is a 401K you are required to make minimum withdrawals at that time. Whether Fidelity does them automatically or not is a different story. I don't know and actually kind of doubt it. You likely will have to make arrangements with Fidelity to have the RMD taken out. If you don't take your money there is a penalty.

You can't really roll the money to anything else to keep from paying the taxes that are due. Unfortunately, your Uncle Sam wants his cut!

[Katiek]

Most financial institutions will let you set up automatic withdrawals of 401k/IRA's, but a robertf57 noted, you typically have to set them up to start the process. At that point you specify when you want to do the withdrawals, frequency and tax withholding. And if you need mandatory withdrawals, you'll want to make the withdrawals or face heavy penalties.

The withdrawals may count as income depending on the type of account and if your contributions were deductible or pre-tax, but if you don't need the money, you can always reinvest it in an after tax account.

[chet]

Quote:

Originally Posted by Katiek Most financial institutions will let you set up automatic withdrawals of 401k/IRA's, but a robertf57 noted, you typically have to set them up to start the process. At that point you specify when you want to do the withdrawals, frequency and tax withholding. And if you need mandatory withdrawals, you'll want to make the withdrawals or face heavy penalties. The withdrawals may count as income depending on the type of account and if your contributions were deductible or pre-tax, but if you don't need the money, you can always reinvest it in an after tax account.

HI Katiek
actually what i had in mind. was to see if i can set the amount i get per month, or does Fidelity set it, and also take about 30K in one lump to purchase my wife a new car. does that sound feasible

Chet

[Rothman]

Yes you can take your required minimum distribution at one time to purchase a car as you suggest, no problem. The key is you must take your RMD, make sure you look at a few times a year if you don't set it as automatic. I do believe that fido does calculate you RMD based on the accounts with them, if you have accounts elsewhere RMDs for those must be included. The government doesn't care which accounts the money is taken from to meet the total RMD but all deferred tax accounts establish the required RMD. This deferral doesn't allow you to avoid taxes, some of that account balance you've grown is your government's money ;-)


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[Katiek]

As Rothman said, you can always take more than your RMD, either as a one time item or take more on a regular basis, but you'll have to pay taxes on the amount withdrawn. The automatic withdrawals are a convenience for people who want to take only the minimum amount required and don't want to think about the withdrawals (or risk forgetting them) once they set up the automatic distribution.

[iac1003]

We just get DH's RMD annually as a lump sum and we haven't been using it, so it goes straight into our after-tax account. We don't use Fidelity but most investment firms will usually pull money from your account in the most tax-advantaged way to withdraw. As others have said, you have to set it up, it's not automatic, but after the first time if you want it automatically, you file a form that says so.


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[Amethyst]

As you probably know, the IRS publishes tables to help you calculate your RMD.

Publication 590 (2013), Individual Retirement Arrangements (IRAs)

Note that there is a Table II specifically for those with spouses who are >10 years younger (Mr. A. and I fall into this category). The RMD is lower, due to the presumed greater "combined" lifespan (personally, I suspect he may outlive me). It isn't a big deal for us, since he has very little in 401K's and IRA's; but for people with big retirement accounts, the difference can be significant.

Amethyst

[NgineER]

Depending on how close to 70 you are and your current tax situation, it could be beneficial to do Roth conversions. But in general, you don't want to touch that money for a decade. The Roth amount is also beneficial for any heirs you might have.

[chet]

As one was asking how close to 70. will be 70 in October, as of now i understand from the replies that i will be calling Fidelity and setting up a RMD plan, i am going get it touch with them in the next month or so and see how much in advance i need to set this up, am i on the right track.

thank you
Chet

[robertf57]

Just a note Chet, If you turn 70 in Oct you actually don't have an RMD until 2016. RMDs are required in the year you turn 70 1/2.

[38Chevy454]

As the rest said, you have to do the withdrawal and pay taxes on that, since it was put in as pre-tax money. What you do with the withdrawal money is your choice - spend on new car, put in after-tax savings, put into Roth, put into grandkids college savings account, go on vacation, or whatever. The point is you need to just call Fidelity and they can help you figure out the best withdrawal strategy, you will only have to take at minimum the amount IRS requires. Can take more of course.

Also good point that you are good for 2015 with no mandatory required withdrawal as Robert stated. You can still take a withdrawal to get wife a new car if you want, and pay taxes on that withdrawal. This will also slightly reduce future years RMD amounts.

[Big_Hitter]

Quote:

Originally Posted by robertf57 Just a note Chet, If you turn 70 in Oct you actually don't have an RMD until 2016. RMDs are required in the year you turn 70 1/2.

I thought the required beginning date was the april 1 of the calendar year after you turn 70.5

[hnzw_rui]

Quote:

Originally Posted by Big_Hitter I thought the required beginning date was the april 1 of the calendar year after you turn 70.5

Yup, that's the deadline. Caveat with delaying that long is you might need to take 2 RMDs in the same calendar year which could possibly push you to a higher tax bracket.

[haha]

Quote:

Originally Posted by 38Chevy454 As the rest said, you have to do the withdrawal and pay taxes on that, since it was put in as pre-tax money. What you do with the withdrawal money is your choice - spend on new car, put in after-tax savings, put into Roth,

I think that you cannot do a Roth conversion with RMD money. You can do a conversion after your RMD for any given year has been done. So if your RMD is $20,000, you can do a follow on Roth conversion of say $10,000. But you will owe taxes on the additional ordinary income generated from these withdrawals.

Ha

[robertf57]

Quote:

Originally Posted by hnzw_rui Yup, that's the deadline. Caveat with delaying that long is you might need to take 2 RMDs in the same calendar year which could possibly push you to a higher tax bracket.

Exactly right. You just get a reprieve on the date of payment. You actually owe for the year you turn 70.5

[38Chevy454]

Quote:

Originally Posted by haha I think that you cannot do a Roth conversion with RMD money. You can do a conversion after your RMD for any given year has been done. So if your RMD is $20,000, you can do a follow on Roth conversion of say $10,000. But you will owe taxes on the additional ordinary income generated from these withdrawals. Ha

I think we are saying the same thing? You do the RMD and pay taxes on that. Then you can make a Roth contribution, or however else you want to spend/save that money for. Point being you have to do the RMD and pay taxes on that amount.

[haha]

Quote:

Originally Posted by 38Chevy454 I think we are saying the same thing? You do the RMD and pay taxes on that. Then you can make a Roth contribution, or however else you want to spend/save that money for. Point being you have to do the RMD and pay taxes on that amount.

Maybe we are, I am not sure.You can't make a Roth contribution unless you have earned income and meet the Roth criteria. You can of course make a Roth conversion, from your TIRA or Rollover IRA.. But this conversion will cause a separate transaction form you TIRA, and a separate tax on the amount of the conversion. An illustration: You want to do your required RMD, which happens to be $20,000 for 2015. You also want to do a $20,000 Roth conversion. Your total taxes on these two transactions will be whatever amount you owe on that additional $40,000 of ordinary income. Also, your RMD must be satisfied before you can do the conversion.

Is this what you are also saying?

Ha

[hnzw_rui]

Quote:

Originally Posted by 38Chevy454 I think we are saying the same thing? You do the RMD and pay taxes on that. Then you can make a Roth contribution, or however else you want to spend/save that money for. Point being you have to do the RMD and pay taxes on that amount.

Nope. I don't think you're saying the same thing. As @haha has explained, the Roth conversion money needs to be different from RMD money. Might be a good idea to do some Roth rollovers to fill out lower tax brackets before age 70 1/2 if you're expecting to have a large RMD. For uniform life expectancy, RMD starts at 3.65% of account balance and goes up to 5.35% of account balance when you reach age 80.

Quote:

Originally Posted by robertf57 Exactly right. You just get a reprieve on the date of payment. You actually owe for the year you turn 70.5

By the way, what happens if, say, your birthday is in December 1? You turn 70 1/2 on May 1, 2016 so RMD deadline for 2016 is April 1, 2017. So does that pretty much mean you only have the ff RMDs?

2016 (age 70 1/2): deadline 04/2017
2017 (age 72): deadline 12/2017
2018 (age 73): deadline 12/2018
etc...

[38Chevy454]

I guess I could have been more clear. My assumption was OP Chet had other income since he has not taken any 401k withdrawals until now that he is required to by age. Maybe Chet has a large cash bundle under his mattress, or else he likely has some type of income.

I do agree the simple answer is you can't do a direct Roth conversion with RMD money. Also you need other income at least equal to the amount you intend to put into Roth account.