When & How do you take RMD?

[2177V]

I know this HAS TO be on here but I could not find it.

By when/how I mean once a year, quarterly, monthly etc. Any particular reason one is better than another?

Here is the IRS link to RMD:

https://www.irs.gov/publications/p590b#en_US_2019_publink1000231238

One paragraph caught my eye:

"Distributions from individual retirement account.
If you are the owner of a traditional IRA that is an individual retirement account, you or your trustee must figure the required minimum distribution for each year. See Figuring the Owner's Required Minimum Distribution below."

My comment: If you have an IRA with Fidelity, Vanguard, etc who may be considered a "trustee", I then recommend that you contact them to determine if they will figure out the RMD for you. Perhaps they will give you the distribution options for monthly, quarterly, yearly, lump sum, etc

If they informed you that you have to figure this out yourself, then the same above link implied that you have to use the Worksheet in Appendix A. This worksheet implies that you take the value of the IRA on Dec 31 and then divide by the "distribution period" in appendix B. Table II is applicable to my situation because my wife is 20 years younger than me.

Using $1,000,000 IRA as an example, if you are age 70 and your spouse is age 50, the distribution period is 35.1. RMD= $1M/35.1= $28,490
Disclaimer: I am not a tax expert so you should verify this RMD calculation with a CPA or qualified tax advisor.

What is funny is that the publication has a situation where the guy can be age 115 and the wife is age 20. The distribution period is 63, so RMD=$1M/63 = $15,873. It appears the IRS is making sure that the 20 years old wife has sufficient money remaining in the $1M IRA to inherit.

 

[OldShooter]

... My comment: If you have an IRA with Fidelity, Vanguard, etc who may be considered a "trustee", I then recommend that you contact them to determine if they will figure out the RMD for you. Perhaps they will give you the distribution options for monthly, quarterly, yearly, lump sum, etc. ...

Well they "may be considered a Trustee" because that's what they are.

Both Fido and Schwab provide the RMD amount as a routine part of their statements and screens. IIRC Schwab even offers a "Take my RMD" button, though I have never used it. I think it's a one-time thing, probably handy at the end of the year to make sure any untaken residual gets withdrawn.

 

[scrabbler1]

Well they "may be considered a Trustee" because that's what they are.

Both Fido and Schwab provide the RMD amount as a routine part of their statements and screens. IIRC Schwab even offers a "Take my RMD" button, though I have never used it. I think it's a one-time thing, probably handy at the end of the year to make sure any untaken residual gets withdrawn.

Fido's website not only shows the RMD for the year (for my friend's inherited IRA) but shows how it is calculated. On the first of the year, the account balance is known, and the divisor is simply the previous year's divisor minus one. Given what I wrote a few posts up, it is good to know this at the start of the year so I can estimate how much cash his IRA will generate compared to what the RMD will be and plan accordingly.

Once we get to the end of the year, we select an RMD, usually bumped up to the next $50 increment to make it easier to keep track of, we can then allocate parts of it to estimated income taxes via 1099R withholding.

 

[rayvt]

The IRS says you must take RMD before Roth conversions.


But.....what your broker(s) report to the IRS does not contain the date of your withdrawals or conversions, just that you took them in the tax year. So as a practical matter, you can do them in whatever order you want.


May make a difference if you get audited, though.

 

[2177V]

Before converting a regular IRA to a Roth IRA, I humbly suggest seeing a CPA to verify whether the conversion makes sense. You do not pay any federal taxes if your income does not exceed a certain amount as noted in the link below.

Ref: https://www.marketwatch.com/story/do-i-need-to-file-my-taxes-2015-02-10

It may be OK to do a partial conversion so that the RMD on your regular taxible IRA will be below the IRS threshold for paying taxes. You may then use income from the Roth IRA for any income you need above the IRS threshold. For your state taxes, I do not know if your state has a similar threshold before you have to pay state taxes.

I guess I am concerned about people doing a 100% Roth conversion, pay taxes on the 100% Roth conversion and then later discovered that they could have avoided some of the Roth conversion tax by only doing a partial Roth conversion.

 

[davebarnes]

2. I am doing 12 QCDs in 2021 to use up most of my RMDs.
3. A $2500 RMD will be done before March 01.
4. Roth conversion will be done before March 01

Oops.
I need to do the QCDs before the Roth conversation.
I will accelerate the 12 QCDs into the first 6 months and then do the Roth conversion.

Why is it so complicated? Don’t answer, it was a rhetorical question.