RMD from inherited IRA

[LRDave]

This is a trivial question - $-wise and timing-wise..... just want to know what the cool kids around here think.

DW has to take an RMD from the tIRA she inherited from her mother. This isn't the first RMD, so the amount is 1/27th of the total. The IRA was small, so think around $2400.

Let's say the IRA distribution must come from selling BRK-B shares.

Q: Given your perception of the current economic climate, plus what you know (or don't know!) of BRK-B, would you take the distribution now or at the end of the year?

I know it is most likely a toss-up (and trivial to boot).

 

[Bir48die]

I think what you're asking is do we think the market is going to tank at any time before the end of the year.

Since you have intimated that this is a lowly $2,400/year and it possibly doesn't affect your overall budget then it really doesn't matter when you take it. If you feel uneasy about the market then just go ahead and take it.

I have an inherited IRA that we just use for traveling and I have it scheduled to pay the first week in January rain or shine. Since it's fun money I'm not concerned if it's gone up or down compared to prior years.

 

[OldShooter]

IOW, can we time the market? No.

 

[GrayHare]

If BRK.B is near its high, I'd sell some soon to lock in the gains and fund the RMD. "Pigs get fat, hogs get slaughtered."

 

[FrankiesGirl]

I move mine all over the place. I currently have it set for November, but next year's is getting changed to January. I don't care what the markets are doing, that amount isn't going to result in any significant loss or gain, so I'd suggest you not worry over when to take it and get it when you want it/have a use for it. If you legitimately can't think of any reason or want, then set it to automatically come out in early December so it's taken in a timely manner.

 

[ERD50]

At $2,400, why not just pull it all this year? Is the tax deferral really worth dealing with planning an RMD each year? It would be one less account to worry about. And if she were to pass, the executor/trustee would need to deal with getting it to the beneficiaries.

None of that is a lot of work, but why bother? Simplify!

-ERD50

 

[RobbieB]

I agree. $2400 isn't anything to worry about, close it and pay the tax.

 

[MissMolly]

I don't think he's saying the total account balance is $2,400. I think he is saying the RMD is $2,400 which would make the account balance somewhere in the neighborhood of $65,000. That might cause problems to pull that much as once.

 

[RobbieB]

Yup, I was confused by erd50. Yeah 2400 but do it once a year.

 

[RunningBum]

You're overthinking it. It's $2400, and there are 3 months left in the year. But to answer your question, I see more downside than upside in the near term, so I'd do it now. You can always invest it outside of the IRA.

 

[HI Bill]

Since we can't see the future, I'd just wait for a relative 'up day', and take the RMD...if October is as volatile as predicted, it might be an exciting time to try to time the market, LOL.

 

[gerntz]

I don't think he's saying the total account balance is $2,400. I think he is saying the RMD is $2,400 which would make the account balance somewhere in the neighborhood of $65,000. That might cause problems to pull that much as once.

He said the IRA is $2400.

 

[LRDave]

He said the IRA is $2400.

Missy Molly has the situation correct. Total for IRA is about $65K. RMD amount for this year is about $2400.

 

[LRDave]

If BRK.B is near its high, I'd sell some soon to lock in the gains and fund the RMD. "Pigs get fat, hogs get slaughtered."

This is where my thinking is going. DW's parents had a nice run with the BRK.B they purchased many years ago and taking a little profit now seems like a good idea to me.

 

[Animorph]

I would have to think the upside is much smaller than the downside just now. But a $2400 movement and three month decision period is not worth the bother. A few hundred bucks that would average out with future RMD good/bad timings.

If you take the $2400 and buy something similar to BRK in a taxable account, or a total U.S. market index, then you end up roughly neutral regardless of what the market does.

You might also consider taking something like $800/month over the last three months and hedge your bets. No need to make this just an either/or guess.

I did all my Roth conversions (where I want to do it at market lows) at the beginning of this year, while the market seemed down. Next year I might wait for the end of the year or do several conversions throughout the year. Of course markets tend to be higher at the end of the year, on average, and I wouldn't want to bet against that without a strong conviction.

There is a right answer. We just don't know what it is yet.

 

[jpeter1093]

Speaking of RMDs from an inherited trust IRA. My wife has one that she just got. We paid an accountant to determine the RMD for the first year. Am I right to assume the RMD will now be the same permanently or do we need to pay an accountant each year to figure it out? Thanks!

 

[HI Bill]

Speaking of RMDs from an inherited trust IRA. My wife has one that she just got. We paid an accountant to determine the RMD for the first year. Am I right to assume the RMD will now be the same permanently or do we need to pay an accountant each year to figure it out? Thanks!

The RMD each year is based on the ending balance of the prior year (and the life expectancy)...most institutions (like Vanguard and Fidelity) offer a free RMD service; with Vanguard, you can elect to make the annual withdrawal manually at your discretion, or you can have the house make the withdrawals automatically. No need to pay anyone. [This applies to a regular inherited IRA; I'm not sure if there's any difference for an inherited Trust IRA].

 

[GrayHare]

Speaking of RMDs from an inherited trust IRA. My wife has one that she just got. We paid an accountant to determine the RMD for the first year. Am I right to assume the RMD will now be the same permanently or do we need to pay an accountant each year to figure it out? Thanks!

Whatever the RMD divisor was for the prior year, subtract one for this year. For example, if the divisor was 25 for year 2018, the RMD was (IRA balance at end of 2017) / 25. The 2019 RMD will be (IRA balance at end of 2018) / 24.

 

[Animorph]

It was easy enough to google the inherited RMD procedure and get the applicable table. It's very easy to calculate at that point. It is different than a normal personal IRA RMD. I don't remember seeing a Fidelity RMD calc for the first year, but after that they have agreed with my calc.

 

[ERD50]

It was easy enough to google the inherited RMD procedure and get the applicable table. It's very easy to calculate at that point. It is different than a normal personal IRA RMD. I don't remember seeing a Fidelity RMD calc for the first year, but after that they have agreed with my calc.

It could be that the deceased had already made the RMD for the first year, and if it was at FIdelity before and after, their system would know that. That's what I saw on DW's IRA inherited from her DM.

-ERD50

 

[Ginny]

I always take the RMD at the beginning of the year so I don't forget. It's not much, about $2,000.

 

[RetireBy90]

Since we can't see the future, I'd just wait for a relative 'up day', and take the RMD...if October is as volatile as predicted, it might be an exciting time to try to time the market, LOL.

Or, if you plan to take the $2400 RMD and invest it then it may make sense to sell on a down day and purchase more shares when you put it back into market. HRMMM

 

[HadEnuff]

Speaking of RMDs from an inherited trust IRA. My wife has one that she just got. We paid an accountant to determine the RMD for the first year. Am I right to assume the RMD will now be the same permanently or do we need to pay an accountant each year to figure it out? Thanks!

No and NO!!!

The amount will change every year, calculated by knowing the balance of the inherited IRA at the end of business Dec. 31 of the previous year.

So, no, the RMD will not be the same permanently.

And NO!!, while it needs to be calculated every year, you do not need to hire an accountant every year to do it. However, if you are using an accountant for other stuff, he/she can figure it out for you in about 15 seconds, so it shouldn't add much to the overall bill.
If not you can ask the accountant what fraction was used to multiply the balance to arrive at last year's RMD. If it was 1/24, that was based on the life expectancy of your wife being 24 more years. Unlike a regular IRA, that does not change with the inherited IRA.

So if the first year the multiplier was 1/24, the next year would be 1/23, and the following year would be 1/22, and so on until eventually at the 24'th year it would be 1/1, and you would be emptying the IRA..

So, find out what the multiplier was last year, and all you need after that is the Dec. 31 balance, and you can figure it out.

Since you will eventually need to empty it, you might consider taking more than the RMD along the way, so you don't have a huge distribution in the later years.

 

[Andre1969]

I have two inherited IRAs, and have them set to do their RMD in April. At the time, my rationale was the whole "Sell in May and go away" thing. Sometimes, May could end up being an off month, and I had attributed that to the "Sell in May" thing.

But, in checking my records, over the years, May is almost always a better month than April for me. But, looking closer, I'm also usually at a higher point toward the end of the year than I am in April. Looking back, the only years I've had where I've been worse off in December than April were 2001, 2002, 2008, 2011, 2015, and 2018. 2000 Might have been one of those years as well. I had more money invested at the end of the year, but back then my total was very small. I was also adding a lot of money. I had a return of -5.4% in 2000, so I lost money overall that year. But I didn't keep enough data to see how I fared from April to December of that year. So, in my case, let's say I was down 7 years. My spreadsheet now has 22 years of data in it. So, 7 years out of 22 were down. Or, about 32%. So, I'm guessing this would be a good case for moving my RMD to December.

My RMDs are pretty small. One account only has about $4100 in it. The RMDs have been running around $110-120/yr. The other has about $64K in it, and the RMD is around $1700-1800/yr. So, we're really not talking big money here.

 

[HarveyS]

Speaking of RMDs from an inherited trust IRA. My wife has one that she just got. We paid an accountant to determine the RMD for the first year. Am I right to assume the RMD will now be the same permanently or do we need to pay an accountant each year to figure it out? Thanks!

I believe that the first year (year of death) the RMD is calculated on the original owner's life expectancy, regardless of date of death. Year 2 and thereafter on the beneficiary's life expectancy. Typically the year 1 RMD >> year 2 and thereafter RMD. This assumes the original owner was taking RMDs already (that is, above 70.5 years).

Your brokerage should be able to provide RMD amount as well.

https://www.irahelp.com/slottreport/taking-year-death-ira-minimum-distribution