RMD Question

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Bob B
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RMD Question

Post by Bob B »

I will be 70 in March, 2023. Is my first RMD due December 31, 2023 or 2024? (Ignore the fact that the first year RMD can be delayed until April.)

What is the advantage, if any, to waiting until April of the following year for the first RMD?

Thank you.
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cheese_breath
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Re: RMD Qustion

Post by cheese_breath »

Since you will be 70 1/2 in 2023 you will be responsible for your first RMD in 2023 (Ignore the fact that the first year RMD can be delayed until April.).

Advantage? You get to keep your money a few months longer.
DIsadvantage? Will paying taxes on two RMDs in the same year bump you into a higher tax bracket?
Last edited by cheese_breath on Mon Feb 06, 2017 1:54 pm, edited 1 time in total.
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pshonore
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Re: RMD Qustion

Post by pshonore »

December 2023.

One advantage is if your income is lower in 2024, you may pay less tax, but you will have to take 2 RMDs in 2024 if you do that.
Alan S.
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Re: RMD Qustion

Post by Alan S. »

Depending on where your AGI falls with regard to inclusion of SS income, you may find that deferring all or part of your first RMD to the second year will result in a lower total tax bill for both years. This is done through a greater reduction of taxes in the first year than the amount of increase for the second year.

You can best determine this late in the first year before taking any of the first year RMD. You should have a good idea of other first year income and deductions and also a pretty good idea regarding the following year. For many retirees, taxable income is fairly stable from year to year.

Taking around 60% of the first year RMD saved me several hundred dollars over the two year period.
jimcrawford01
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Re: RMD Question

Post by jimcrawford01 »

Alan S

Thanks for the info.

Just to be clear:

You are saying that we can take just a partial RMD in the year we turn 70 1/2?

Then, the next year make up for the partial plus a full RMD for that following year?

I was not aware that we could make a partial.

Jim
Alan S.
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Re: RMD Question

Post by Alan S. »

jimcrawford01 wrote:Alan S

Thanks for the info.

Just to be clear:

You are saying that we can take just a partial RMD in the year we turn 70 1/2?

Then, the next year make up for the partial plus a full RMD for that following year?

I was not aware that we could make a partial.

Jim
Yes, in the year you reach 70.5 you can withdraw anywhere from 0 to your full RMD. Any portion that you do not take must be completed by 4/1 of the following year. The following year RMD must be completed by 12/31 of that year. Taxable income applies for the year the RMDs are actually distributed. Crunching the numbers to determine the optimal split takes some work however, and you must have a good handle on what your tax situation will be for both years. You would usually do the number crunching in December of the 70.5 year, then immediately take the portion of the first year RMD that works best.
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sometimesinvestor
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Re: RMD Question

Post by sometimesinvestor »

You have received good and accurate advice but it is quite rare that waiting to the following april is a good idea and you should definitely do the calculations rather than just guess.i
RudyS
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Re: RMD Question

Post by RudyS »

If you are planning to make QCD (qualified charitable distributions), QCD's must be the first distributions out of the RMD.
Alan S.
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Re: RMD Question

Post by Alan S. »

If you plan do include QCDs into the mix when determining how to split your first year RMD between two years, the number crunching changes since a QCD is not included in either AGI (affects SS taxation) or taxable income, but it IS credited toward your RMD.
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celia
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Re: RMD Question

Post by celia »

RudyS wrote:If you are planning to make QCD (qualified charitable distributions), QCD's must be the first distributions out of the RMD.
No, the QCD doesn't need to be the first distribution(s), but the RMD must be first. However, if the QCD ISN'T taken from the RMD (or part of it), you will be paying tax on the RMD (or part of it).

If you want to do Roth conversions, you will have to pay tax on the amount converted. But if you don't need the RMD for living expenses, you could use it for a QCD (tax-free), then do your Roth conversion (taxed). If you do it in the other order, you will take the RMD (taxed), do a conversion (taxed), then take a QCD (tax-free). Assuming both choices remove the same amount of money in a year, the first scenario (early QCD) will end up with more money in the Roth (and less in taxable).
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
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celia
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Re: RMD Question

Post by celia »

Alan S. wrote:If you plan do include QCDs into the mix when determining how to split your first year RMD between two years, the number crunching changes since a QCD is not included in either AGI (affects SS taxation) or taxable income, but it IS credited toward your RMD.
...only when the QCD was taken before all the RMD had been withdrawn.

Example: Assume the account holder has a $1,000 RMD.
Case 1:
$1,000 QCD (tax-free, counts as RMD)

Case 2:
$500 RMD to taxable (taxed)
$500 QCD (tax-free, counts as RMD)

Case 3:
$500 RMD to taxable (taxed)
$1000 QCD (tax-free, 500 counts as RMD)
In this case, if the QCD had been taken first, the $500 could have been converted or put in taxable.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
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celia
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Re: RMD Qustion

Post by celia »

cheese_breath wrote:Since you will be 70 1/2 in 2023 you will be responsible for your first RMD in 2023 (Ignore the fact that the first year RMD can be delayed until April.).

Advantage? You get to keep your money a few months longer.
DIsadvantage? Will paying taxes on two RMDs in the same year bump you into a higher tax bracket?
Another disadvantage is that your second RMD will be more since you didn't withdraw anything (or enough) the first year.

Another disadvantage is that you can't convert anything in the first year since you hadn't taken the RMD first.

Another advantage or disadvantage, depending on if you want to defer RMDs as long as possible or want to draw the account down sooner, is that there may be more growth in the account if you defer to the second year.

And it could be to your advantage or disadvantage if the markets move differently in the first year compared to the first 3 months of the second year. You will have to remove more or fewer shares to make your RMD depending on market movements.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
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