Suggestions for estimating future RMDs

[Tom52]

I have, up this point, ignored consideration of RMDs and the associated tax consequences. Well, time marches on and I will be subject to RMDs in calendar year 2027. Wife will be subject to RMDs also in calendar year 2027. I am sitting on about $1,580,000 in IRAs and 401ks, Wife has about $407,000 in IRAs, in current $.

I would like to estimate how much we would be required to draw down starting in 2027. I would also like to know how to estimate the required RMDs in subsequent years. Somewhere along the line I will need to figure out how much I will need to have deducted for federal taxes. We live in Florida so there is not state tax considerations.

In my case I have a 401k at Vanguard and another, much smaller, at Principal. There are also two IRAs at Vanguard. Should I rollover 401k at Principal into an IRA at Vanguard to get all the accounts under one investment firm? How else would you know how large the RMD will be then how much to take in taxes? Does each investment firm advise how much needs to be taken as an RMD based only upon the amount they have on account?

Maybe someone can suggest a website that a good basic primer for RMDs that can answer most of these questions.

 

[SecondCor521]

I would combine the 401(k)s and IRA into one IRA account.

Generally, you're required to take an RMD from each 401(k) individually. If you have multiple IRAs, the RMD is figured in aggregate and you can take it from the IRAs in any way you choose.

If you're getting close, your RMDs will start in the year you turn 73. Your wife's RMDs will start in the year she turns 73. There's a special "April 1" rule where you can defer the first RMD into the year you turn 74, but that's usually a bad idea.

To figure your RMDs, take the account balance at the end of the previous year (so 12/31 of the year in which you turn 72) and divide it by 26.5, which is the age 73 divisor from Table III in the appendices at the very back of IRS Pub 590-B.

You may want to increase the account balances by expected growth between now and then.

Vanguard has an RMD service where you can set it up with them to do your RMD for you automagically - they automate the calculation, distribution, and they'll withhold at whatever percentage you want for federal. I think other custodians can also do this.

 

[FiveDriver]

There's a Uniform Lifetime Table on the interwebs. This will show you how to divide your total Retirement accounts by a Life Expectancy factor.

I found it much easier to move all my Retirement accounts to Fidelity. They do the calculus on December 31 each year, and will send it to any account you designate....monthly, quarterly, or a lump sum annually. Vanguard can probably do the same.

They will also with-hold tax payments in any percentage you choose, and send these to the IRS.

 

[Spock]

This link should take you to Table III in IRS pub 590
https://www.irs.gov/publications/p590b#en_US_2022_publink100090310
Divide your total IRA+401K balances (seperate calc for your spouses IRAs) by the number in the table for your age (ex 27.4 at age 72) for your first years RMD.

 

[OldShooter]

The calculation is easy. Dollar value of the accounts at the end of the previous year, withdraw per the IRS table. Done. The harder part is predicting the annual account balances subject to RMDs. It depends on your withdrawal plans and on market growth projections. Do you have a good dartboard?

Among IRAs, the total RMD can be taken from anywhere. I'll defer to others on the 401k rules as I haven't had one in years.

For simplicity I would combine everything that can be combined, per @SecondCor521's advice. (You can't combine your and your wife's IRAs.) I would also combine similar mutual funds into one (like two S&P 500 funds) and ditch all small positions, say under 5% of the total portfolio. Your statements will be a breeze to read and understand and RMDs will be easier to calculate.

 

[Running_Man]

If there is any company stock in a 401K there are very large tax reasons to keep the 401K - you can transfer the stock to a brokerage account and tax owed is only on the original price paid for the stock at that time, then when you sell the stock your tax is a capital gain and not ordinary income. Capital gains rate tax is 15% up to 500K.

401K's are protected by Federal law from bankruptcy, IRS tax liens, court settlements while IRA's are not, they are only protected by state law which differs from state to state.

A blanket statement to roll over to an IRA to make it easier may not be correct.

 

[TheWizard]

Would be interesting to know how long the OP has been retired and how much they have drawn down that tax sheltered money thus far, both for Roth conversions and living expenses.
It's not generally the best idea to leave those investments untouched during early retirement years...

 

[MissMolly]

You can use this tool. It will also assume a 6% return on whatever balance you input to the year of withdrawal https://www.schwab.com/ira/ira-calculators/rmd

 

[pb4uski]

Your 2027 RMD will be based on the account value at 12/31/2026 so you'll need to estimate that. I would take the 12/31/2023 balance * (1+r)^(2026-2023) where t is your assumed total return on those accounts for the next few years. The divide the estimated 12/31/2026 balance by the relevant factor from the IRS table.

I would do this calculation separately for each account.

 

[Car-Guy]

Try this calculator. https://www.aarp.org/retirement/required-minimum-distribution-calculator.html


I used it for a few years before my RDM's started and it was pretty dang close.

 

[Tom52]

Would be interesting to know how long the OP has been retired and how much they have drawn down that tax sheltered money thus far, both for Roth conversions and living expenses.
It's not generally the best idea to leave those investments untouched during early retirement years...

We have been retired 10 years, we have never drawn out any money from our IRAs or the 401ks, either for Roth conversions or living expenses. Maybe not the best idea but it is what it is.

 

[Car-Guy]

If you're getting close, your RMDs will start in the year you turn 73. Your wife's RMDs will start in the year she turns 73. There's a special "April 1" rule where you can defer the first RMD into the year you turn 74, but that's usually a bad idea.

And as a reminder for the OP (and others), while this "special" rule is allowable the first year, you can get yourself into IRMAA trouble if your combined IRA, 401k account balances and other incomes are large enough. This is how a lot of folks first learn about IRMAA. But by then it's too late.

 

[SecondCor521]

And as a reminder for the OP (and others), while this "special" rule is allowable the first year, you can get yourself into IRMAA trouble if your combined IRA, 401k account balances and other incomes are large enough. This is how a lot of folks first learn about IRMAA. But by then it's too late.

That's one reason why my sentence ends with "usually a bad idea" ;-)

 

[Car-Guy]

That's one reason why my sentence ends with "usually a bad idea" ;-)

And I caught that... That's why I elaborated for thoes who may wonder why it's a bad idea.

 

[pb4uski]

We have been retired 10 years, we have never drawn out any money from our IRAs or the 401ks, either for Roth conversions or living expenses. Maybe not the best idea but it is what it is.

Perhaps something to consider for 2024-2026.

 

[gauss]

In the past, I have generally seen 3-4% of prior year's balance as the RMDs for the first year. Note this was based on age 70 1/2 RMD under the old schedule so it may be off by a bit.

-gauss

 

[ER2B]

How do you calculate the RMD on the portion of your IRA that are in CDs?

 

[pb4uski]

It doesn't matter what the traditional IRA is invested in... just the end of prior year balance whether it is stocks, bonds, CDs, gold, crypto or whatever.

 

[Koolau]

RMDs as such are not such a big deal BUT they limit your flexibility. IOW, RMDs dictate when you must withdraw and how much - it's out of your hands. But it's not like you have actually to spend the money.

The issues I've faced are that RMDs threaten me with IRMAA and other "gotchas" based on total taxable within a given year. I've been attempting to take extra beyond RMDs to "get rid" of some of my 401(k) money. Now, I really don't have much room to take more to avoid IRMAA, etc. Like I said - it removes some of your flexibility. But as a 1st world problem, I guess it's all good though YMMV.

 

[Tom52]

Thank you all for your input and links to the RMD estimators. I have done a very rough initial calculation using these estimators.

Also a big thanks about IRMAA.

Here is my situation. I will turn 73 in early December 2026. I assume I should take my first RMD in 2026 because if I wait to take my first RMD early in 2027 I would then be required to take second RMD before year end 2027? If that is true about taking two RMDs in 2027 I will definitely be subject to IRMAA that year. Each year, thereafter, I would be flirting with possibility IRMAA but hopefully running just a bit below.

 

[pjm-7]

I'll put my usual shout out for doing Qualified Charitable Distributions (QDD's). Starting at age 70.5 you can donate up to $100,000 directly from your IRA's to 501(c)(3) organizations. This will reduce the account balance on December 31st, then you calculate your RMD. QCD's can only be made from IRA's and not any other type of retirement account. The $100,00 is for each person. You can consult with the IRS Publication 590-B for the details.

 

[SecondCor521]

I assume I should take my first RMD in 2026 because if I wait to take my first RMD early in 2027 I would then be required to take second RMD before year end 2027? If that is true about taking two RMDs in 2027 I will definitely be subject to IRMAA that year.

Correct, that's what Car-Guy and I were mentioning upthread.

I'll put my usual shout out for doing Qualified Charitable Distributions (QDD's). Starting at age 70.5 you can donate up to $100,000 directly from your IRA's to 501(c)(3) organizations. This will reduce the account balance on December 31st, then you calculate your RMD. QCD's can only be made from IRA's and not any other type of retirement account. The $100,00 is for each person. You can consult with the IRS Publication 590-B for the details.

It's $105,000 now, and indexed to inflation.

QCDs can count towards the RMD too. So if your RMD is $50K and you do nothing but a $75K QCD, then you're complying with both RMD and QCD rules. You could also do a $25K RMD and a $30K QCD, or any other combination such that ($RMD + $QCD > $50K) and ($QCD < $105K).

 

[USGrant1962]

Try this calculator. https://www.aarp.org/retirement/required-minimum-distribution-calculator.html


I used it for a few years before my RDM's started and it was pretty dang close.

That calculator is wrong for future RMD estimates.

It does not appear to apply the Hypothetical Rate of Return between now and RMD age. When I enter RMDs in 2037 with a 5% rate of return it shows ~4% of my current balance. Not ~4% of my forecasted 2037 balance.

 

[single2019]

That calculator is wrong for future RMD estimates.

It does not appear to apply the Hypothetical Rate of Return between now and RMD age. When I enter RMDs in 2037 with a 5% rate of return it shows ~4% of my current balance. Not ~4% of my forecasted 2037 balance.

Works perfectly for me

 

[USGrant1962]

Works perfectly for me

Enter 2037 RMD date, 1962 birthday, $1,000,000, and 5% growth. The output is today's RMD of $1,000,000/24.6=$40,650. The calculator asks you to enter growth, then ignores it for future start dates. Not material if you are already in RMDs or just a few years out, but wrong for forecasting.

The correct answer is $1M x 1.05^13 / 24.6 = $76,652.

It apparently only applies rate of return after you start RMDs, which is not useful for future start dates. The tooltip says "... future year RMDs can be calculated by changing this value." but it doesn't work for future.