RMD Question

[street]

So, I went back back to old threads and I'm still not clear on one thing.

So, for example if I take my RMD in January and have taxes taken out. So, am I good for the years or is there a true up time and do I have to take more our RMD or do I have to owe more taxes.

Once I take my RMD I'm good as far as taxes for the year on that RMD?

 

[audreyh1]

Your RMD amount in a given year is based on the value of your portfolio on Dec 31 of the previous year. So it’s already set in stone on Jan 1 of the current year. There is no trueing up required.

 

[Car-Guy]

As I understand it, if you take out your full RMD for the year in an account (let's say in your 401k) and pay the tax on that, then you are done for the year with RMD's for that account. Same with you IRA(s). The rules are a little different between combining 401k's and IRA's, and of course you need to be extra careful the first year RMD's are due" if"you plan on deferring until next year.

To make it simple, it you calculate RMD's for each account (IRA, 401k, etc) and withdrawn the full amount(s) from each account in January, and pay taxes on it, then you are done for the year on those accounts.

 

[street]

Your RMD amount in a given year is based on the value of your portfolio on Dec 31 of the previous year. So it’s already set in stone on Jan 1 of the current year. There is no trueing up required.

OHHH Thank You!!! Everyone must have known that EXCEPT ME in those past threads. Lol
Thank You again.

 

[PaunchyPirate]

Whether enough taxes are withheld from your RMD to cover ALL of your tax obligation can depend on several things. Do you have other taxable income? Dividends? Interest? How much are you having withheld? Etc.

One way to model this is to use last year’s tax software to do an approximation of this year’s tax situation.

 

[audreyh1]

OHHH Thank You!!! Everyone must have known that EXCEPT ME in those past threads. Lol
Thank You again.

I’m sure until you actually do it there is always something new to learn.

 

[street]

Whether enough taxes are withheld from your RMD to cover ALL of your tax obligation can depend on several things. Do you have other taxable income? Dividends? Interest? How much are you having withheld? Etc.

One way to model this is to use last year’s tax software to do an approximation of this year’s tax situation.

Yes, I do understand that and there will be other income taxes to pay also. But for the RMD if taken out right off the bat I should be good with the IRS for the RMD for that year. Thanks

 

[street]

I’m sure until you actually do it there is always something new to learn.

YES, it will be a learning experience, I'm sure.

 

[audreyh1]

I suppose there is a chance you don’t know the actual Dec 31 value of your combined IRAs on Jan 1. Perhaps some last minute distributions hadn’t been reported. So I suppose it’s your responsibility to determine that value. I would think your December statement should be complete. The brokerage generates the 5498 form for each IRA in Jan and reports that to the IRS plus sends you a copy.

 

[Car-Guy]

I suppose there is a chance you don’t know the actual Dec 31 value of your combined IRAs on Jan 1. Perhaps some last minute distributions hadn’t been reported. So I suppose it’s your responsibility to determine that value. I would think your December statement should be complete. The brokerage generates the 5488 form for each IRA in Jan and reports that to the IRS plus sends you a copy.

That happens to me each year. The value of my 401k on 12/31/XX isn't known until mid January.

 

[street]

I suppose there is a chance you don’t know the actual Dec 31 value of your combined IRAs on Jan 1. Perhaps some last minute distributions hadn’t been reported. So I suppose it’s your responsibility to determine that value. I would think your December statement should be complete. The brokerage generates the 5488 form for each IRA in Jan and reports that to the IRS plus sends you a copy.

That is great information. I plan to take mine early in the year and even February then things should be complete by then.

Thank You for your help!!

 

[audreyh1]

It’s Form 5498 - had to correct my post.

 

[MdaPetralia]

I plan to take mine early in the year and even February then things should be complete by then.

Why not wait to take your RMD until around the end of year to maximize potential investment growth/income on the $ you plan to withhold for taxes?

 

[street]

Why not wait to take your RMD until around the end of year to maximize potential investment growth/income on the $ you plan to withhold for taxes?

That is a great question. My thinking is I will reinvest right back into the markets. My thinking is it would be a wash if I get that money working right away.
I will admit I have always done things the unorthodox way in finances.

 

[audreyh1]

Agreed, it’s a wash except for when you pay/withold the taxes.

Personally I deliberately have low growth assets in my IRAs so it doesn’t matter.

Another option is to take the RMD in kind, which is market neutral. You just have to pay or withhold the taxes elsewhere if you take the entire amount in kind.

 

[street]

Agreed, it’s a wash except for when you pay/withold the taxes.

Personally I deliberately have low growth assets in my IRAs so it doesn’t matter.

Another option is to take the RMD in kind, which is market neutral. You just have to pay or withhold the taxes elsewhere if you take the entire amount in kind.

I have considered that option as well. The issue I have with that is robbing from Peter to pay Pual. I live on liquid assets cash so I'm always invested trying to make a buck. My plan I'm sure isn't what most here would do but I did here to an above middle 7# digit portfolio doing most things against the grain.
I really do appreciate your advice and will consider that option.

 

[Walt34]

OHHH Thank You!!! Everyone must have known that EXCEPT ME in those past threads. Lol
Thank You again.

Nope, don't feel like you're the only one I had the same question when I first started having to take RMD's. Or is it RMDs'? RMDS? rmds? Whatever....

Nevermind.

 

[audreyh1]

Required Minimum Distribution RMD. I guess over multiple years it could be RMDs. But there is only one number for each year.

 

[scrinch]

BTW, you define the federal and state withholding for your IRA distributions. So once you take the distribution and have the withholding done, you are done with taxes for your RMD as long as you withheld the right amounts. Your "true-up" is actually on April 15 the next year when you calculate total taxes due on ALL of your income for the year. Your RMD (IRA distribution) is just considered regular income on your tax return and is summed up with all your other income and taxed accordingly.

 

[all4j]

One subtlety often overlooked is that when taxes are withheld, the IRS (your state may vary?) considers it to be spread out over the year. Some people find it to be more convenient to take the RMD near year end & withhold from their RMD to not only cover the RMD but other income through the year.

Whether you take the RMD early or late in the year, it will seldom be a wash. Impact depends on several variables. You might have a situation where it usually is a wash, but that can’t be said as a generalization imho.

 

[marko]

Question: is there any difference between 2024 and 2025 RMD? The calculator I'm using is for 2024.

 

[all4j]

Question: is there any difference between 2024 and 2025 RMD? The calculator I'm using is for 2024.

I'm not sure what your question is exactly. If you are talking about the "methodology", I think they'll be the same assuming it isn't inherited (which can have some odd scenarios). But, each year has a different factor & is applied to a different balance. For example, the 2025 rmd will be based on the 12/31/2024 ending amount of all IRAs. You probably knew that part though!

 

[audreyh1]

Question: is there any difference between 2024 and 2025 RMD? The calculator I'm using is for 2024.

Yes, the RMD amount changes every year based on your age and the prior year end value of your total IRAs. A table is used to look up the age factor for calculating your RMD.

 

[marko]

I'm not sure what your question is exactly. If you are talking about the "methodology", I think they'll be the same assuming it isn't inherited (which can have some odd scenarios). But, each year has a different factor & is applied to a different balance. For example, the 2025 rmd will be based on the 12/31/2024 ending amount of all IRAs. You probably knew that part though!

Yes, the amount changes based upon age and balance, but I was wondering if the percentage required to be withdrawn changes.

Or maybe I don't understand how it works.

 

[all4j]

Yes, the amount changes based upon age and balance, but I was wondering if the percentage required to be withdrawn changes.

Or maybe I don't understand how it works.

No, I think you do understand & its just terminology differences. You mentioned age -- that changes the entry in the table, which has a different factor, which increases over time. So, each year the percentage withdrawn increases because the factor did because the age did.