RMD for an Inherited IRA

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Cernel
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RMD for an Inherited IRA

Post by Cernel » Sat Jan 16, 2010 7:42 am

This will be the first year that I will need to take a RMD for an Inherited IRA and I was wondering if there is any advice as to when to take the distribution? I know I need to take it before December 31, 2010, but I am not sure if I should take it now, wiat til mid-year or wait til the end of the year?

Any insight would be appreciated. Thanks

fundseeker
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Post by fundseeker » Sat Jan 16, 2010 8:00 am

The plan for my RMD is to take it at the end of the year. That way the RMD amount has a chance to grow tax deferred. There should be no rush to take it unless you need the money or are afraid you might forget. Plus, maybe the government will decide sometime this year to give us another year off.

If the RMD amount is a substantial amount and is in the stock market, maybe you could withdraw some periodically, like dollar cost averaging. Tom

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legio XX
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RMD for an Inherited IRA

Post by legio XX » Sat Jan 16, 2010 8:14 am

Like many things it depends on your personal circumstances. If you don't need the money, there's no reason to take it before the end of the year. Let it sit there and grow tax free for as long as possible. If you need the cash, take it earlier. The bummer is the tax bite - ordinary income.

Vic

MnD
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Post by MnD » Sat Jan 16, 2010 9:32 am

If I have the cash in the account I take it at the start. I have all the funds in the IRA set to _not_ reinvest dividends and capitals gains and to date this has always provided enough cash annually to withdraw the RMD without any other transactions. It goes right in to the kids 529 accounts so the move is actually a slight shift from cash to a moderate allocation of stocks/bonds/cash.

Still Learning
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Re: RMD for an Inherited IRA

Post by Still Learning » Sat Jan 16, 2010 9:41 am

legio XX wrote: The bummer is the tax bite - ordinary income.

Vic
The OP did not mention if it's a Traditonal IRA or Roth.

Distributions from a Roth are not taxable

If it's a Traditional IRA, it may have a basis meaning it includes after tax contributions. That fraction of distributions is not taxable. The OP needs to verify if there is any basis; there could be tax savings.

S L

livesoft
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Post by livesoft » Sat Jan 16, 2010 9:44 am

On another thread, it was pointed out that if something goes wrong with the RMD taken in a December, that it may not be possible to fix it before year-end which may lead to a penalty.

For whatever reason, my spouse takes the RMD from her inherited IRA in June. It's under $500, so its a minor blip on the tax return.

jimc
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Post by jimc » Sat Jan 16, 2010 10:09 am

Don't mean to hijack the thread, but my wife has an inherited IRA with TIAA and has to take her first distribution this year. How is she supposed to know the minimum amount she's required to take?

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Post by livesoft » Sat Jan 16, 2010 10:15 am

jimc wrote:Don't mean to hijack the thread, but my wife has an inherited IRA with TIAA and has to take her first distribution this year. How is she supposed to know the minimum amount she's required to take?
She is supposed to read IRS publication 590 which has all the gory details.

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Post by kaneohe » Sat Jan 16, 2010 10:36 am

In principle, waiting to end of yr to get maximum benefit of tax deferral would be preferred. In practice, what if there is a down yr in market (assuming in equities) and value decreases a lot. RMD will still be based on previous yr ending value, so some % of last yr ending value becomes a larger % of this yr ending value. If you had a crystal ball, you'd know what to do. If not, ???? or consider something intermediate in nature.

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Cernel
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Post by Cernel » Sat Jan 16, 2010 10:36 am

Thanks to all for your replies and insight.

To provide additional information to a few of the questions in the replies:
1. The Inherited IRA is a Traditional IRA with all pre-tax contributions.
2. I don't need the money now.
3. It is not a substantial amount. (Invested with Vanguard in the Total Stock Market Index ~$15K)

Based on the feedback, sounds like I should wait til the end of the year. I will take in advice the reply concerning any potential problems with executing the distribution, especially given the recent threads on Vanguard and the "lost money" and other problems people have had with Vanguard.

Now for the "Post Hijacker" :D
In addition to the IRS Pub 590 that was recommended, you might want to give a call to the firm that is holding the Inherited IRA. Many, like Vanguard, Fidelity, TRowe Price, offer services that help in determining the amount needed to withdraw and will help with the actual distribution.

Also, check out the Wiki file on this site, it has some valuable information and tables,

and finally, here is a link to the RMD Distribution Tables
http://www.required-minimum-distributio ... ables.html

kaneohe
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Post by kaneohe » Sat Jan 16, 2010 10:38 am

jimc wrote:Don't mean to hijack the thread, but my wife has an inherited IRA with TIAA and has to take her first distribution this year. How is she supposed to know the minimum amount she's required to take?
If you trust them to do it correctly, they might have an option to calculate it for you.

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RMD for Inherited Non-Spousal IRA

Post by tomd37 » Sat Jan 16, 2010 10:53 am

Jim C.

The RMD for 2010 is based on two factors:

The value of the IRA as of 12/31/2009
Your wife's age as of 12/31/2010

Then using IRS Pub 590, Table I and her age at the end of 2010, determine the single life expectancy (referred to as a factor) for her age and divide the value of the IRA on 12/31/2009 by that factor. The result is the RMD for 2010 which must be taken by 12/31/2010.

For the 2011 RMD she will divide the 12/31/2010 balance by the same factor minus 1.0. You will be subtracting 1.0 from this year's factor in every subsequent year to determine the factor for that year.

For example, assuming she is 37 as of 12/31/2010. The factor for this year's RMD is 46.5. For the 2011 RMD it is 45.5, for 2012 it is 44.5, for 2013 it is 43.5, etc.

Clear as mud ???
Tom D.

jimc
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Post by jimc » Sat Jan 16, 2010 11:58 am

Thanks to all for your assistance...I'll calculate it using the IRS publication and probably confirm it with TIAA. Sorry for the hijack.

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Post by LadyGeek » Sat Jan 16, 2010 12:07 pm

There's a lot of information in the wiki.

Please see Inheriting an IRA on the Bogleheads Wiki.

Be sure to checkout the list of related topics on the right side of the page.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

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