Question about RMD on Inherited IRA

[MissMolly]

My mother passed away in December 2013 and I have an inherited IRA. I know I have to take the RMD this year and I know where to find the calculator to figure out the amount based on the balance as of 12-31-2013. The Inherited IRA was at Schwab and I transferred it to Vanguard. Schwab charged a $50 fee to do this transfer. My question is, does that $50 count towards my RMD for this year? I can't really find this specifically addressed anywhere, but I am assuming the answer is "yes". Can anyone verify?

Thanks

 

[pb4uski]

Call Vanguard. They will do the RMD calculation for you and answer your question on the $50 fee.

I have my Mom's IRA on an automatic where they take the year's RMD and transfer it to her taxable account. EZ.

 

[MissMolly]

Thanks pb4uski. I probably will have to do that. I can set up future RMD's with Vanguard to happen automatically, but since I didn't roll it over until Feb 2014 I have to do it manually this year (because they don't know the balance as of 12-31-2013).

 

[steelyman]

Thanks pb4uski. I probably will have to do that. I can set up future RMD's with Vanguard to happen automatically, but since I didn't roll it over until Feb 2014 I have to do it manually this year (because they don't know the balance as of 12-31-2013).

Schwab should be able to tell you that. I had them reset cost basis on things as of date of death (so they do have records). That's not so different from end of year balances.

 

[pb4uski]

Schwab should be able to tell you that. I had them reset cost basis on things as of date of death (so they do have records). That's not so different from end of year balances.

Why would one reset cost basis for an IRA? Any distributions would be fully taxable irrespective of cost basis wouldn't they?

I can see where a rest cost basis would be useful for an inherited taxable account.

 

[steelyman]

Yes, you are right.

In our case, it is a taxable trust. I meant that the brokerages can say what values are on "X" date (which applies to RMDs).

 

[meierlde]

To see the numbers on rmds get a copy of irs pub 590 page 38 explains how to determine the rmd for a beneficiary on page 38 using the life expectancy tables starting on page 85. Essentially you take the balance on 12/31 and divide by the life expectancy for your age in the table to get the RMD starting on page 38 is an example.

 

[pb4uski]

Yes, you are right.

In our case, it is a taxable trust. I meant that the brokerages can say what values are on "X" date (which applies to RMDs).

True... I would think if OP provided Vanguard with the 2013 end of year value that VG could tell her how much of an RMD is needed.

 

[steelyman]

The original question was about the transfer fee. My guess (but I don't know) is that's just a nickel-and-dime "cost of doing business". I wouldn't count it as part of a RMD or pay a real accountant to tell me.

 

[Alan]

The original question was about the transfer fee. My guess (but I don't know) is that's just a nickel-and-dime "cost of doing business". I wouldn't count it as part of a RMD or pay a real accountant to tell me.

+1

Paying tax on that $50 will be a lot cheaper than a mistake causing a penalty for under withdrawal for the RMD.

 

[pb4uski]

My guess would be that it counts towards the RMD in that the alternative was for the OP to pay it separately from after-tax funds. Actually, now that I think of it, it may really be more of a question for Schwab (how they will report the fee to the IRS) than for Vanguard.

 

[MissMolly]

+1

Paying tax on that $50 will be a lot cheaper than a mistake causing a penalty for under withdrawal for the RMD.

Alan - very true

 

[2B]

+1

Paying tax on that $50 will be a lot cheaper than a mistake causing a penalty for under withdrawal for the RMD.

I would assume that the $50 just disappeared from the balance.

The RMD would be based on the 12/31/13 value. Next year's RMD would be based on the 12/31/14 value. The $50 is lost in the shuffle. I would not consider it as a withdrawl or anything other than a "management fee."

 

[scrabbler1]

I don't have anything to add which would contradict anyting already posted here; it is all good advice.

What I can add is what I do for my friend who has had an inherited IRA since after his mom died in 2012. We did a rollover from Morgan-Stanley to Fidelity in late 2012 but Fido reimbursed him for the fee MS charged him. Whether it was part of the RMD was moot not only becasue of that but also because the MD advisor did the RMD before the funds got disbursed between him and his sister.

What we did in 2013 and will do going forward is to round up to the nearest hundred dollars the RMD just to make the numbers easier to handle at tax time. What we also do is to arrange to have nearly all of it go to income tax withholding because he has considerable investment income from an inherited (taxable) brokerage account, and this is a good way to offset some of the (state and federal) taxes due on those investments (and stay in the "safe harbor" to avoid underwithholding penalties). He doesn't need the cash from the RMD so he won't miss it.

 

[Alan]

I would assume that the $50 just disappeared from the balance.

The RMD would be based on the 12/31/13 value. Next year's RMD would be based on the 12/31/14 value. The $50 is lost in the shuffle. I would not consider it as a withdrawl or anything other than a "management fee."

I agree, if the $50 fee was subtracted before Dec 31 2013.

I got the impression that since the person died in December that the funds didn't actually get rolled over to the OP's Vanguard account until 2014, and that rollover removed $50 in fees from the balance.

I would calculate the RMD from the 2013 ending balance and forget about the $50 fee.

 

[MissMolly]

OK, seems to be pretty much a consensus not to take the $50 into account, and yes, I admit it is a paltry amount to worry about.

How about another question? I not only inherited an IRA but also a ROTH IRA. The ROTH was very small - my portion was only about $1,800. I didn't roll it into an Inherited ROTH because I didn't want to have to keep up with RMD's on such a small balance - and since it was a ROTH, no taxes due on it. I am assuming I can count the total amount of the Inherited ROTH towards the total amount of RMD's due on both accounts for this year and only withdraw the difference from the Inherited IRA?

 

[meierlde]

I agree, if the $50 fee was subtracted before Dec 31 2013.

I got the impression that since the person died in December that the funds didn't actually get rolled over to the OP's Vanguard account until 2014, and that rollover removed $50 in fees from the balance.

I would calculate the RMD from the 2013 ending balance and forget about the $50 fee.

The $50 will show up in next years balance, so it only affects the RMD for one year at most, since the balance on 12/31/2014 will reflect that $50 reduction. So we are talking about less than 20 dollars here.

 

[Alan]

How about another question? I not only inherited an IRA but also a ROTH IRA. The ROTH was very small - my portion was only about $1,800. I didn't roll it into an Inherited ROTH because I didn't want to have to keep up with RMD's on such a small balance - and since it was a ROTH, no taxes due on it. I am assuming I can count the total amount of the Inherited ROTH towards the total amount of RMD's due on both accounts for this year and only withdraw the difference from the Inherited IRA?

Good question and I don't know the answer. For regular IRA's you can calculate the total RMD on each IRA and then take the money from only one account but I'm not sure about when one of the IRA's is a ROTH since only inherited ROTH's have RMD's

Since you never actually had an inherited ROTH (did the executor of the estate cash out your portion?) I would say you can't count it towards the RMD, but I really don't know.

 

[steelyman]

If it were me (which it's not), I'd cash out the inherited Roth and buy an individual stock. You might pay tax on dividends, but no gains except on your timeline.

 

[MissMolly]

Good question and I don't know the answer. For regular IRA's you can calculate the total RMD on each IRA and then take the money from only one account but I'm not sure about when one of the IRA's is a ROTH since only inherited ROTH's have RMD's

Since you never actually had an inherited ROTH (did the executor of the estate cash out your portion?) I would say you can't count it towards the RMD, but I really don't know.

Schwab opened a "temporary" account that they rolled the ROTH money into and then cut a check to me immediately. When I look at my Schwab account I can see the Inherited IRA with a zero balance, but I do not see the Inherited ROTH or the temporary account.

There was also quite a chuck in a taxable account that I also rolled to Vanguard. Finally, we are closing on the sale of her condo at the end of this month, so that will be more money coming in. I put the ROTH money in with the other taxable money which is where I will also put the proceeds of the sale.

 

[steelyman]

It seems to me you are on the way.

It can be a little hard to decode Internet posts - remember, we are all sitting in places like Amarillo.

 

[youbet]

My guess would be that it counts towards the RMD in that the alternative was for the OP to pay it separately from after-tax funds. Actually, now that I think of it, it may really be more of a question for Schwab (how they will report the fee to the IRS) than for Vanguard.

Actually not a question for Schwab. They would have charged the fee whether there was going to be a forthcoming RMD or not. It's a question for the IRS. The IRS wants to see two things: (1) The IRA value as of the preceding EOY. (2) That an RMD was taken that's at least as much as the formula requires. The fact that a fee was taken for the xfer is of no concern to them.

My guess is that the xfer fee will not count towards the RMD just as any other possible account fees (some institutions charge annual IRA account maintenance fees), commissions, trading fees, etc., do not count toward RMD's.

But I'm no CPA. And the safe thing to do is assume the $50 does not count towards the RMD. We're talking very little money here.......... Maybe someone that actually knows will comment.........

 

[MissMolly]

In case anybody is interested, I contacted Schwab. Schwab says the cashing out of the Inherited ROTH IRA satisfies 100% of RMD's for the ROTH, but cannot be counted towards the Inherited IRA. I still have to calculate/take the full RMD's on the balance as of 12-31-2013 before 12-31-2014. Also, the $50 does not count toward the RMD.

Thanks for all the input.