RMD Question

[horrnsfan]

I'm doing some forward looking planning and I need some guidance on how RMD's are determined. Here is my example: during the calendar year I withdraw $7,500 quarterly (for immediate cash flow requirements) from my IRA as $30,000 would be a close approximation to my RMD determined at the end of the year. If I make these withdrawals, will the administrator recognize them as satisfying my RMD for the year, or will the end of the year RMD calculation still take place. If the answer is the latter then essentially I will have received combined distributions which would double my intended withdrawal. Am I missing something?

 

[GrayHare]

if your IRA(s) are subject to RMDs, the first dollars withdrawn from thiose IRAs are considered RMD dollars, all the way up to the RMD amount

 

[Dtail]

if your IRA(s) are subject to RMDs, the first dollars withdrawn from thiose IRAs are considered RMD dollars, all the way up to the RMD amount

Agree and logic works this time around.

 

[audreyh1]

First of all, your RMD amount is determined/calculated at the beginning of the year based on your prior year Dec 31 total IRAs value. It’s not determined at the end of the year.

Seems like your administrator should recognize withdrawals as applying if they are tracking your RMD for you. They will report your IRA withdrawals on your 1099R form. But it’s really up to you to determine and track satisfying your RMD.

Your administrator is not obligated to recognize any RMD. They just report your withdrawals on your 1099R form to the IRS. It’s up to you to report what’s on that 1099R form on your tax return and if the IRS ever asks about you satisfying your RMD for a given year, you have the records to show you did. Interestingly the 1040 form does not even mention the word “RMD”.

 

[OldShooter]

Who is this "administrator?" The broker? Our (only) two tIRAs are at Schwab. At the beginning of the year Schwab calculates our RMD for the year and posts that number on our monthly statements. They also report a running total of the amount withdrawn YTD. So we can compare to see where we are vs the RMDs. Other than this courtesy reporting of the two numbers they really have nothing to do with, no responsibilities with respect to RMDs. (Of course if we had tIRAs elsewhere, the RMD implications of those tIRAs would not be reported at Schwab.)

Re "end of year calculations" the RMD for a given year is calculated from the balance(s) as of 12/31 of the prior year. So the RMD is known on 1/1. Nothing to estimate.

 

[braumeister]

The only thing you might possibly be missing is if you meet two criteria:

• You don't need or want all of the money you get out of the IRA
• You want to do some gifting to qualified charities

If so, you can have some of the money (up to $100K) sent directly to the charity as a Qualified Charitable Distribution (look up QCD; there is a lot written about it).
The advantage is that although it's not deductible, it reduces the balance in the IRA and counts as part (or even all) of your RMD.

Example:

• Your RMD for the year is $30K
• You donate $15K as a QCD to an eligible charity

Now you only have $15K left to take as an RMD and pay taxes on. That will keep your AGI lower than it would otherwise have been. This is very helpful for those who are close to a threshold on their AGI (such as for IRMAA).

 

[jebmke]

The only organization that has to be satisfied about the RMD is the IRS. The administrator or custodian doesn't care. In fact, they may not even know what your total nut is if you have another IRA somewhere else. You can satisfy the RMD requirement from any and all Traditional IRAs you own. For example, if you have one at Fidelity and one at Vanguard, if there are sufficient funds, you can take the entire RMD from only one.

 

[horrnsfan]

Thanks to everyone on your quick and informed responses. My "administrators" will be Schwab and Fidelity and I'm still a few years away from taking the RMD's. My biggest mistake was assuming the RMD was calculated at the end of the year for that specific year. Now that I understand that the RMD is calculated on 12/31 of the year prior to taking the RMD makes things very simple.

Also understanding that you can satisfy your combined RMD tax liability in the manner you choose provides much more flexibility as I consider how to "fund" the withdrawals (available cash versus actually selling equity positions).

 

[Midpack]

if your IRA(s) are subject to RMDs, the first dollars withdrawn from thiose IRAs are considered RMD dollars, all the way up to the RMD amount

This has been discussed here many times.

Though there are many incorrect sites on the internet that promulgate the “first dollars rule”- I’ve been told (by someone here smarter than I am) the “first dollars” rule is out of date if it was ever true. What order you withdraw RMDs, QCDs or any other tIRA distributions makes no difference. You just have to show you took a distribution equal or larger to the sum of your RMDs and QCDs and have documentation for same.

There is nothing in the IRS documentation that says anything about order of withdrawal from a tIRA that I can find. Retirement topics - Required minimum distributions (RMDs) | Internal Revenue Service

If someone has a credible source to the contrary I’m sure we’d all like to see it.

 

[GrayHare]

Well, Midpack, so technically someone, if they wanted, could withdraw an amount equal to their RMD, but not call it an RMD, then later that year make a second withdrawal of that amount and call THAT the RMD. I don't see any financial advantage to that approach, making it a nomenclature detail potentially confusing to RMD newbies. Could be significant later if RMD rules change, though.

 

[OldShooter]

There is nothing in the IRS documentation that says anything about order of withdrawal from a tIRA that I can find. ... If someone has a credible source to the contrary I’m sure we’d all like to see it.

Gawd no!! We have wasted enough time on that OWT.

 

[Midpack]

Well, Midpack, so technically someone, if they wanted, could withdraw an amount equal to their RMD, but not call it an RMD, then later that year make a second withdrawal of that amount and call THAT the RMD. I don't see any financial advantage to that approach, making it a nomenclature detail potentially confusing to RMD newbies. Could be significant later if RMD rules change, though.

That’s my understanding. I’ve seen folks say you must withdraw QCDs first, or RMDs first - but I’m told that’s not true. And I can’t think of a reason order would make any difference.

Here’s the smarter person reply from a while back. I’ll let her decide if she wants to be named, not my place.

Unfortunately, I think we are victims of a quagmire of third party examples that are confusing, often poorly worded, and sometimes flat out wrong.

1. You have an annual RMD you must meet once you reach RMD age.
2. RMDs can be met via normal distributions or QCDs or a combination.
3. The taxable income portion of your distributions is Total Distributions minus Total QCDs.
4. QCDs may be made up to $105K per year.
5. You can only rollover/convert amounts exceeding your RMD each year.

That’s it, no ordering, no taxable QCDs.

 

[Al18]

For IRA, RMD, inherited IRA questions, check out the Slott Report The Slott Report - Ed Slott and Company, LLC

 

[TheWizard]

The first dollars rule is primarily applicable to doing Roth conversions from the applicable account.

You must complete your RMD for the year, by doing some combination of QCDs and taxable distributions, before doing any (legal) Roth conversions.

I think we all can agree on that...

 

[RunningBum]

This has been discussed here many times.

Though there are many incorrect sites on the internet that promulgate the “first dollars rule”- I’ve been told (by someone here smarter than I am) the “first dollars” rule is out of date if it was ever true. What order you withdraw RMDs, QCDs or any other tIRA distributions makes no difference. You just have to show you took a distribution equal or larger to the sum of your RMDs and QCDs and have documentation for same.

There is nothing in the IRS documentation that says anything about order of withdrawal from a tIRA that I can find. Retirement topics - Required minimum distributions (RMDs) | Internal Revenue Service

If someone has a credible source to the contrary I’m sure we’d all like to see it.

What about Roth conversions? Can you take those before you satisfy the RMD? That is an "other tIRA distribution" but I'm under the impression you can't do this. Schlott agrees:

New Rule: All IRA RMDs Must Be Satisfied Prior to Doing a Roth Conversion - Ed Slott and Company, LLC

Yes, you read that title correctly. This rule was confirmed in the 2024 final SECURE Act regulations, released this past July. If a person has multiple IRAs, even if they are held at different custodians, the total aggregated IRA required minimum distribution (RMD) must be withdrawn before any...

irahelp.com

 

[Koolau]

Kinda glad I only have to worry about my one 401(k) when it comes to RMDs.

 

[TheWizard]

What about Roth conversions? Can you take those before you satisfy the RMD? That is an "other tIRA distribution" but I'm under the impression you can't do this. Schlott agrees:

New Rule: All IRA RMDs Must Be Satisfied Prior to Doing a Roth Conversion - Ed Slott and Company, LLC

Yes, you read that title correctly. This rule was confirmed in the 2024 final SECURE Act regulations, released this past July. If a person has multiple IRAs, even if they are held at different custodians, the total aggregated IRA required minimum distribution (RMD) must be withdrawn before any...

irahelp.com

As mentioned in #14, that is technically not permissible.
I say "technically" since, in the absence of a detailed audit, the IRS cannot determine the date you completed your RMD nor the date you did that Roth conversion.

And in my case, doing a tax-free rollover from my 403(b) to my tIRA is not permissible until completing my RMD...