RMD's on an IRA

[Karen G]

Our RMD's for this year are based on our ending balance of 2019. Our IRA is considerably smaller now with the drop in the stock market. Are we bound by last year's numbers? Do we just wait until right before the end of the year and compare our ending balance to last year's and then make whatever adjustment we need to?

 

[bbodb1]

I thought I read that RMD's were waived for 2020 as part of the recently signed stimulus bill....

 

[IngridN]

RMDs are waived for this year. This includes traditional as well as inherited IRAs.

Ingrid

 

["Roger"]

The above two posts are correct about the recent stimulus bill suspending the RMD for this year. Three things to consider...

If taxes go up for next year, you could end up paying a higher tax on what you withdraw next year. (However, you have delayed taking any money out for a year.)
If you make your RMD a charitable tax contribution, you don't pay any taxes on the withdrawal (up to $100,000 - too rich for my blood). In that case, there is no disadvantage to making those contributions now.
If (I would bet against this, but I will mention it) coronovirus is taken care of and the stock market takes off like a rocket, it could end up even higher this Dec. 31 than last Dec. 31.

Personally the second point is the only one that I will act on. I might as well take any of my charitable contributions from by 401, 403 IRA (whatever you have).

 

[SmithOp]

If you make your RMD a charitable tax contribution, you don't pay any taxes on the withdrawal (up to $100,000 - too rich for my blood). In that case, there is no disadvantage to making those contributions now.
).

I can think of a disadvantage, if you have to sell depressed stocks in order to withdraw the cash. If you have a cash fund for the withdrawal, then its fine to take it now.

Its a good question, IRS rules are RMD is based on Dec31st value.

How is the amount of the required minimum distribution calculated?

Generally, a RMD is calculated for each account by dividing the prior December 31 balance of that IRA or retirement plan account by a life expectancy factor that IRS publishes in Tables in Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs). Choose the life expectancy table to use based on your situation.

Joint and Last Survivor Table - use this if the sole beneficiary of the account is your spouse and your spouse is more than 10 years younger than you
Uniform Lifetime Table - use this if your spouse is not your sole beneficiary or your spouse is not more than 10 years younger
Single Life Expectancy Table - use this if you are a beneficiary of an account (an inherited IRA)

Retirement plan and IRA required minimum distributions FAQs | Internal Revenue Service

Find out about required minimum distributions on your retirement plan under Internal Revenue Code sections 401(a)(9), 408(a)(6) and 408(b)(3) and how much and when to withdraw.

www.irs.gov

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[cgeidl]

Look at the end of the year and you can make a better decision. I will take out my RMD amount and maybe more as long as I keep in the lower tax bracket. If you keep accumulating you will end up taking more out with the increasing total and increasing age.

 

[GetawaysRus]

Here's a few more links for you to read:

https://www.forbes.com/sites/ashlea...0-opening-window-to-tax-savings/#78fba9bb2cb6

https://www.cnbc.com/2020/03/27/wai...withdrawal-congress-is-giving-you-a-pass.html

A few paragraphs in that second link specifically address what the OP is talking about. I'm quoting:

The added sweetener for waiving the 2020 RMD is that those withdrawals would have been based on account values as of the end of 2019 – back when the markets were at their heights.

“You would’ve been stuck taking the RMD and paying taxes on value that no longer exists,” said Slott. “So for that reason, the waiver is good.”

As cgeidl points out, if you still do intend to take a retirement plan distribution this year (let's say you will need the money), then the question becomes whether you should wait and hope for the stock market to (hopefully) recover and then withdraw the funds later in the year.

 

["Roger"]

I can think of a disadvantage, if you have to sell depressed stocks in order to withdraw the cash. If you have a cash fund for the withdrawal, then its fine to take it now...

This was a good post, but I confess that I failed to mention an assumption that I was making: namely, that you still plan to donate to some charities this year. Then it still makes sense to take the money from one's IRA, 401b, 403k, or whatever. Then you are not paying taxes on the withdraw and never have paid taxes on that money. Thus, it strikes me as the best place to take the money from.

As your post and the subsequent ones make clear, past that point, there is a lot to think about. Which funds in your savings account? When? Do I give as much as I have in past? More because the charities are really hurting? Less because I don't have as much to give any more? Hold off a year because I could really be hurting? All in all, I shouldn't have made it sound so cut and dried.

 

[WinniWoman]

RMDs are waived for this year. This includes traditional as well as inherited IRAs.

Ingrid

So here is the irony. In February our FA suggested to me to change my annual Inherited IRA RMD withdrawal from June, which existed since 2012, to March. He said it is better for planning income, especially since I am on an ACA plan, if I have this done the beginning of the year rather than mid year. So the end of February I moved $ from some of my mutual funds into my money market account within the IRA and the withdrawal for the RMD was done on March 6th.

If I only had known......

 

[dagger1]

There might be an advantage to taking a 2019 RMD now while stock values have dropped if you don’t need the RMD to live on. Say your RMD is $100K. You might be able to move (what was) $150-$200K worth of stock, which is now valued at $100K, and pay the tax only on the $100K. If in 2-5 years these stocks (now outside your IRA) have rebounded back to their previous $150-$200K value, you will have saved a lot of money in taxes that were avoided...

 

[rapmarks]

There might be an advantage to taking a 2019 RMD now while stock values have dropped if you don’t need the RMD to live on. Say your RMD is $100K. You might be able to move (what was) $150-$200K worth of stock, which is now valued at $100K, and pay the tax only on the $100K. If in 2-5 years these stocks (now outside your IRA) have rebounded back to their previous $150-$200K value, you will have saved a lot of money in taxes that were avoided...

Makes sense if moved to a Rot, but you will stay pay taxes on the withdrawal. Add $100,000 to income puts you in a higher tax bracket,Sonos you have a lot less.

 

[dagger1]

Makes sense if moved to a Rot, but you will stay pay taxes on the withdrawal. Add $100,000 to income puts you in a higher tax bracket,Sonos you have a lot less.

Yes, taking RMD’s can definitely put you in a higher tax bracket. I think I stated that you will have to pay taxes on the $100K RMD. But you will have moved what (might) be $150K-$200K worth of stock out of your IRA and only pay taxes on $100K. Of course if the stocks you move out of your IRA never recover their value back in January, then it’s a moot move...

 

[IngridN]

So here is the irony. In February our FA suggested to me to change my annual Inherited IRA RMD withdrawal from June, which existed since 2012, to March. He said it is better for planning income, especially since I am on an ACA plan, if I have this done the beginning of the year rather than mid year. So the end of February I moved $ from some of my mutual funds into my money market account within the IRA and the withdrawal for the RMD was done on March 6th.

If I only had known......

First, 'better for planning income'...how so? Makes no sense. Second, it's my understanding you can put it back within 60 days. I'm not sure on this but since your FA seems to know a lot, maybe he can tell you.
Edit: Not sure if this applies to inherited IRAs.

 

[Conan]

So here is the irony. In February our FA suggested to me to change my annual Inherited IRA RMD withdrawal from June, which existed since 2012, to March. ... So the end of February I moved $ from some of my mutual funds into my money market account within the IRA and the withdrawal for the RMD was done on March 6th.

If I only had known......

If you originally transferred your spouse's IRA via rollover into your own name (option 1 of the choices listed at https://www.fidelity.com/retirement-ira/inherited-ira/learn-about-your-choices ) it may be possible to redeposit the funds you withdrew, within the 60-day rollover period, into a new IRA again in your own name. https://www.irs.gov/publications/p590a#en_US_2019_publink1000230596
This is a very technical area so don't do it without somebody qualified confirming that this will work for you.

 

[WinniWoman]

If you originally transferred your spouse's IRA via rollover into your own name (option 1 of the choices listed at https://www.fidelity.com/retirement-ira/inherited-ira/learn-about-your-choices ) it may be possible to redeposit the funds you withdrew, within the 60-day rollover period, into a new IRA again in your own name. https://www.irs.gov/publications/p590a#en_US_2019_publink1000230596
This is a very technical area so don't do it without somebody qualified confirming that this will work for you.

This was my mother’s ira, not spousal. But anyway I am not going to worry about it now.

 

[WinniWoman]

First, 'better for planning income'...how so? Makes no sense. Second, it's my understanding you can put it back within 60 days. I'm not sure on this but since your FA seems to know a lot, maybe he can tell you.
Edit: Not sure if this applies to inherited IRAs.

I am thinking he means you have the money earlier in the year to use and can plan what you need to withdraw the rest of the year. I am not sure. We are in our 60s so the only RMD required to take.

I could not see what the difference would be but that is what he suggested to do so I did it.

 

[stevenh21]

I have been confused in reading this thread. The sources I find only refer to delaying RMDs for people who turn 70 1/2 in 2020. They state if one turned 70 1/2 in 2019, distributions have to begin for tax year 2019.

 

["Roger"]

I don't know what you have been reading, but under the new stimulus bill, you do not have to take any RMD's this year. That applies for everyone who normally would have had to take RMD this year.

One thing is different for two groups. If you didn't have to start taking any RMD's until this year, but have already had some taken out, you can put it back into your savings account. If you had to start your RMD before this year and have already had some taken out, you cannot put that money back into the savings account.

I am not simply depending on what I read on the internet for this information. I had automatic withdraw for my RMD's from two different sources. In one case, my financial adviser called me to suggest that I stop the scheduled RMD unless I felt I needed the monthly income. In the other case, I went to stop my scheduled withdraws by going to the account on line. There was a message there stating that all scheduled withdraws for RMDs for the year had been suspended. If I still wanted to have the withdraws taken out, I needed to call to set them up again.