Required Minimum Distributions

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
tenkuky
Posts: 1210
Joined: Sun Dec 14, 2014 4:28 pm

Re: Required Minimum Distributions

Post by tenkuky »

muddlehead wrote: Wed Jun 05, 2019 7:38 pm Y'all are confusing me. If you have to take out the RMD in the year you turn 70 1/2, why the heck wouldn't you take it Jan 2nd in that particular year? And not pay the tax in the associated income tax gain for 15 months?
Cuz you owe the tax when the "income" is obtained, in your example by April 15 of the same year via estimated tax. Or risk paying a penalty for underpayment when you do your taxes following year.
I like the withhold taxes plan with RMDs in December plan.
sport
Posts: 9557
Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: Required Minimum Distributions

Post by sport »

tenkuky wrote: Wed Jun 05, 2019 8:24 pm
muddlehead wrote: Wed Jun 05, 2019 7:38 pm Y'all are confusing me. If you have to take out the RMD in the year you turn 70 1/2, why the heck wouldn't you take it Jan 2nd in that particular year? And not pay the tax in the associated income tax gain for 15 months?
Cuz you owe the tax when the "income" is obtained, in your example by April 15 of the same year via estimated tax. Or risk paying a penalty for underpayment when you do your taxes following year.
I like the withhold taxes plan with RMDs in December plan.
Also, if you take the full RMD at the beginning of the year, you lose the ability to make QCDs and have them count towards your RMD.
muddlehead
Posts: 272
Joined: Mon Sep 22, 2008 2:03 pm

Re: Required Minimum Distributions

Post by muddlehead »

""Y'all are confusing me. If you have to take out the RMD in the year you turn 70 1/2, why the heck wouldn't you take it Jan 2nd in that particular year? And not pay the tax in the associated income tax gain for 15 months? ""

**Cuz you owe the tax when the "income" is obtained, in your example by April 15 of the same year via estimated tax. Or risk paying a penalty for underpayment when you do your taxes following year. I like the withhold taxes plan with RMDs in December plan.**

Is this right? Let's get specific. My wife was born on April 29 1953. She will be 70 1/2 oct 29 2023. The year she turns 70 1/2 is 2023. You are saying if she takes an RMD Jan 1 2023, she will report it on her tax year 2022 taxes which are obviously filed in April of 2023. Huh?
tenkuky
Posts: 1210
Joined: Sun Dec 14, 2014 4:28 pm

Re: Required Minimum Distributions

Post by tenkuky »

muddlehead wrote: Thu Jun 06, 2019 11:13 am ""Y'all are confusing me. If you have to take out the RMD in the year you turn 70 1/2, why the heck wouldn't you take it Jan 2nd in that particular year? And not pay the tax in the associated income tax gain for 15 months? ""

**Cuz you owe the tax when the "income" is obtained, in your example by April 15 of the same year via estimated tax. Or risk paying a penalty for underpayment when you do your taxes following year. I like the withhold taxes plan with RMDs in December plan.**

Is this right? Let's get specific. My wife was born on April 29 1953. She will be 70 1/2 oct 29 2023. The year she turns 70 1/2 is 2023. You are saying if she takes an RMD Jan 1 2023, she will report it on her tax year 2022 taxes which are obviously filed in April of 2023. Huh?
Estimated taxes are due in the period when income is earned. So, in your example: if not paid in 1Q of 2023, when you file in 2024 for tax year 2023, may have underpayment penalty. Which is what I thought you were suggesting, and I was dissuading. Unless I'm also confused :oops:
mcblum
Posts: 517
Joined: Wed Jan 06, 2010 7:46 am
Location: gaithersburg,md

Re: Required Minimum Distributions

Post by mcblum »

Hi there. I have been taking RMDs for the past two years and will take my third-a single payment- on October 1st. Vanguard lets you withhold any amount. I live in Maryland and have 25 % taken out for federal with-holding and 6% for state. The net is reinvested in my taxable. Works for me. Marty
muddlehead
Posts: 272
Joined: Mon Sep 22, 2008 2:03 pm

Re: Required Minimum Distributions

Post by muddlehead »

Re: taking RMD Jan 2 in the year one turns 70 1/2

""Estimated taxes are due in the period when income is earned. So, in your example: if not paid in 1Q of 2023, when you file in 2024 for tax year 2023, may have underpayment penalty. Which is what I thought you were suggesting, and I was dissuading. Unless I'm also confused.""

We'll agree to disagree. Hope some others will chime in to correct one of us. We're all here to learn ...
kaneohe
Posts: 6698
Joined: Mon Sep 22, 2008 12:38 pm

Re: Required Minimum Distributions

Post by kaneohe »

tenkuky wrote: Thu Jun 06, 2019 11:24 am
muddlehead wrote: Thu Jun 06, 2019 11:13 am ""Y'all are confusing me. If you have to take out the RMD in the year you turn 70 1/2, why the heck wouldn't you take it Jan 2nd in that particular year? And not pay the tax in the associated income tax gain for 15 months? ""

**Cuz you owe the tax when the "income" is obtained, in your example by April 15 of the same year via estimated tax. Or risk paying a penalty for underpayment when you do your taxes following year. I like the withhold taxes plan with RMDs in December plan.**

Is this right? Let's get specific. My wife was born on April 29 1953. She will be 70 1/2 oct 29 2023. The year she turns 70 1/2 is 2023. You are saying if she takes an RMD Jan 1 2023, she will report it on her tax year 2022 taxes which are obviously filed in April of 2023. Huh?
Estimated taxes are due in the period when income is earned. So, in your example: if not paid in 1Q of 2023, when you file in 2024 for tax year 2023, may have underpayment penalty. Which is what I thought you were suggesting, and I was dissuading. Unless I'm also confused :oops:
tenuky is correct. Suppose you were working for some company in 2023. You had taxes withheld each paycheck in 2023. In April 2024, you file your tax return for 2023 and "settle up" if there is a balance due. Now suppose you were self-employed in 2023. There is no withholding so you have pay estimated taxes "quarterly" as you earn it. The first installment is due in April 2023. The next yr in April 2024, you file your tax return for 2023 and "settle up" if there is a balance due.

Your wife's RMD is like your self employment income. You have to pay taxes as you earn it or else pay a late penalty. Of course there is that
sneaky withholding that is considered timely no matter when paid so if you have an income source that you can withhold from, then you're
ok. That's why some like to take the RMD late in the yr. While it is true that getting the RMD early may be more favorable from the standpoint of having your earnings from then on being capital gains instead of ordinary income in the IRA, there is that little problem of paying the estimated tax in a timely manner.
jebmke
Posts: 11443
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: Required Minimum Distributions

Post by jebmke »

tenkuky wrote: Thu Jun 06, 2019 11:24 am Estimated taxes are due in the period when income is earned. So, in your example: if not paid in 1Q of 2023, when you file in 2024 for tax year 2023, may have underpayment penalty.
The first year may not be an issue due to the safe harbor rules. And future years can be handled by having taxes withheld.
When you discover that you are riding a dead horse, the best strategy is to dismount.
User avatar
midareff
Posts: 7142
Joined: Mon Nov 29, 2010 10:43 am
Location: Biscayne Bay, South Florida

Re: Required Minimum Distributions

Post by midareff »

is50xenough wrote: Mon Jun 03, 2019 5:28 am
midareff wrote: Sat Jun 01, 2019 8:57 am At age 71 I still want (and do) to travel and see the parts of the world we haven't gotten to yet so our RMD is used for travel spending. it is drawn 1/12 monthly direct to a bank account where it accumulates along with other travel dedicated funds. EFTPS paid Quarterly IRS estimates are done at the end of the previous year and escrowed in a different interest bearing account along with property tax and car & condo insurances. A couple of clicks to set it up and forget about it until next year. ... all automatic scheduled transactions. Get on with the important business of being retired and forgetaboutit. :sharebeer
Agree strongly with get on with important business. Could this be further simplified by paying taxes out of RMD and SS and eliminating IRS estimated?
Sorry for the delay in responding but we spent the month touring Europe with Viking and I'm just checking some boards now, having caught up on some book keeping work. I escrow car and condo insurance along with property tax and EFTPS Quarterly payments into an Ally 2.1% interest bearing account. It has worked well and I use that in conjunction with some programmed excel sheets that give me all the projections I need. Sometimes the natural enemy of a good working plan is the thought of a better one, if you know what I mean.
User avatar
LilyFleur
Posts: 1517
Joined: Fri Mar 02, 2018 10:36 pm

Re: Required Minimum Distributions

Post by LilyFleur »

Dandy wrote: Sun Jun 02, 2019 2:16 pm
By following your suggestion you are missing the opportunity to keep your RMD invested tax deferred until the end of the year and more importantly the advantage of making only one tax payment in December by having it withheld from your RMD.
I think you misunderstood my suggestion - I could have worded it better. :oops: Automate the RMD to occur in December rather than wait to initiate it manually each year in December. Once it is set up to automatically go - you can always decide to adjust it but if you forget or get sick it will still happen.
Great idea!
User avatar
LilyFleur
Posts: 1517
Joined: Fri Mar 02, 2018 10:36 pm

Re: Required Minimum Distributions

Post by LilyFleur »

Alan S. wrote: Tue Jun 04, 2019 8:13 pm
RetiredAL wrote: Mon Jun 03, 2019 11:59 pm
DarthSage wrote: Mon Jun 03, 2019 6:22 am
Another note: Make sure your heirs know about your RMD distribution schedule. We were fortunate--MIL died in July 2017, we had time to recognize that she hadn't done her 2017 RMDs, and the estate took them in plenty of time. There have been posts on this forum of people who lose a relative in Dec., no RMDs have been taken for that year, and they have to scramble to get it done in time, while dealing with funeral plans and grief and all the other stressors of losing a loved one.
That bring up a concern I had not previously thought about. When the beneficiary is not the spouse, but other real people, how do the RMD's get taken as the IRA now belongs to one or more beneficiaries, not to the decedent's estate. In my case, my sister and I are the beneficiaries. Do we each withdraw our portion of the RMD amount from our new formed Inherited Ira Accounts but the estate pays the taxes. Expert advice would be appreciated.
Beneficiaries who inherit IRAs late in the year should not stress out over the status of the year of death RMD. There are typically other issues more pressing. The IRS almost expects these to be late and will always waive the penalty with a properly filed 5329 indicating the reasonable cause for the delay. They accept about anything as reasonable.

IRAs should not be left to the estate barring a very unusual estate situation such having no individuals to inherit and insufficient cash to pay final expenses. When there are individual beneficiaries, they become jointly responsible for completing the year of death RMD and no distributions of any kind can be taken until separate accounts are created for the beneficiaries. If there are multiple individual beneficiaries they can split up the year of death RMD in any portions they wish. Each beneficiary must report taxable income for the amount they receive.

If the estate is the beneficiary of the IRA, but there is a will or intestate provisions determining who will inherit, it is preferable to take no distributions from the IRA until the executor can assign the inherited IRA out of the estate to the estate beneficiaries. These beneficiaries can then complete the year of death RMD and they will each get their own 1099R. If this does not happen until the year after death, a 5329 must be filed to request the penalty waiver. This avoid having to pass an IRA distribution through the estate to those beneficiaries or worse yet having to pay the much higher estate tax rates if the distributions are not passed through to beneficiaries.
If a parent goes into hospice, that is a good time to evaluate RMDs, their personal income tax bracket in comparison to their heirs', the amount of medical expenses that are available to be deducted from their income that year, and the type of funeral expenses that are expected if not already prepaid (easily can add up to more than $10,000). If the parent is in a lower tax bracket, it makes sense to take their RMDs as soon as possible, and also to take additional withdrawals if necessary from tax-advantaged accounts to cover the funeral costs. It is better for the heirs to inherit post-tax accounts if they are in a higher tax bracket than the parent, than pre-tax accounts.
Old Guy
Posts: 430
Joined: Mon Mar 19, 2012 7:20 am

Re: Required Minimum Distributions

Post by Old Guy »

I take it monthly and have Fidelity take care of the taxes. Money left over at the end of the month goes back to a taxable account at Fidelity.

Doing quarterly tax payments seems to me to be more work than necessary.
Post Reply