RMDs and subtracting one - an old wives' tale?

[SecondCor521]

Hi all,

I don't take RMD's yet, but my Dad has for the past 10 years or so.

RMD's are calculated by the 12/31 balance of the year before divided by a divisor. There are a few IRS tables in which you can look up the divisor, depending on the circumstances under which you are taking the RMD.

After the first year, there are two possible ways to get the divisor for the second and subsequent years:

1. Take the previous year's divisor and subtract one. For example, you were 70 last year and used 27.4, so this year you should use 27.4 - 1.0 = 26.4.

2. Look up the new divisor in the applicable IRS table based on the person's current age. For example, you were 70 last year and used 27.4, so this year you are 71 and should use 26.5.

I've seen #1 mentioned multiple times on this board, and I've promulgated it myself. I think it's wrong.

#2 seems to be the way Vanguard does it, and seems to match the IRS instructions for how to calculate it.

Can anyone confirm that method #2 is correct? Does anyone know where method #1 comes from (did it used to be the way it was done?) ?

 

[audreyh1]

I've never seen the #1 method. I always looked at the tables.

 

[joeea]

1. Take the previous year's divisor and subtract one. For example, you were 70 last year and used 27.4, so this year you should use 27.4 - 1.0 = 26.4.

This is incorrect.

2. Look up the new divisor in the applicable IRS table based on the person's current age. For example, you were 70 last year and used 27.4, so this year you are 71 and should use 26.5.

This is correct.

 

[ERD50]

....

#2 seems to be the way Vanguard does it, and seems to match the IRS instructions for how to calculate it.

Can anyone confirm that method #2 is correct? Does anyone know where method #1 comes from (did it used to be the way it was done?) ?

The answer, as always, is either "42" or "it depends".

#1 can be correct, for non-spousal inherited IRA's.

https://www.fidelity.com/building-savings/learn-about-iras/inherited-ira-rmd

As a non-spouse beneficiary, you must directly roll over the inherited assets to an Inherited IRA in your own name and use your own age and the IRS Single Life Expectancy Table for calculating the first year RMD. For each year after, you would subtract one year from the initial life expectancy factor.

-ERD50

 

[statsman]

I've never seen the #1 method. I always looked at the tables.

An inherited IRA from a non-spouse uses method #1. The first year is a table lookup. Subsequent years is previous minus 1.

 

[SecondCor521]

Thanks all for the clarifications!

 

[pb4uski]

....#1 can be correct, for non-spousal inherited IRA's.

https://www.fidelity.com/building-savings/learn-about-iras/inherited-ira-rmd



-ERD50

+1

 

[jazz4cash]

The answer, as always, is either "42" or "it depends".

#1 can be correct, for non-spousal inherited IRA's.

https://www.fidelity.com/building-savings/learn-about-iras/inherited-ira-rmd



-ERD50

The way I read the bolder statement, you are subtracting 1 from the initial divisor for all subsequent years (eg the divisor doesn’t change after the 2 yr). I know that not what is meant, but .....