RMDs May Not Be Required for 2020

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schachtw
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Re: IRS Suspends RMD

Post by schachtw »

Flobes wrote: Fri Mar 27, 2020 7:33 pm
retiringwhen wrote: Fri Mar 27, 2020 6:48 pm Any word on inherited IRAs?
Here' a conversation in another thread:
cherijoh wrote: Fri Mar 27, 2020 5:30 pm
Munir wrote: Fri Mar 27, 2020 5:12 pm
Flobes wrote: Fri Mar 27, 2020 5:09 pm
Munir wrote: Fri Mar 27, 2020 4:55 pm There was a question raised in the last hour or so... It asked if inherited IRAs are included in the exemption from taking an RMD this year. I found an opinion in Kiplingers' 3/27/20 issue which I quote below:

"Distributions from inherited IRAs are not included in the waiver and will still need to be taken in 2020."
Forbes article does not agree.
Congress Suspends Required Minimum Distributions
"Children, grandchildren and others who have inherited IRAs (pretax IRAs and Roth IRAs) must take annual withdrawals regardless of their own age. They too get an RMD holiday for 2020."
Wow! I guess we need an "expert" to tell us which opinion is correct: Forbes or Kiplinger's.
[ quotes fixed by admin LadyGeek]

BASKING RIDGE, NJ - As a member of Ed Slott's Master Elite IRA Group, WFP Tax Partners summarizes the recent legislature that was unanimously passed by the Senate as part of the "Coronavirus Aid, Relief, and Economic Security Act," or "CARES Act."

The CARES Act to be Signed into Law waives required minimum distributions (RMDs) for 2020; 10 percent Early Distribution Penalty Waived Up to Certain Amounts; and Plan Loan Rules Relaxed.

The Senate has unanimously passed the massive “Coronavirus Aid, Relief, and Economic Security Act,” or the “CARES Act,” and it is expected to be passed by the House and signed by the President on Friday. The legislation includes a waiver of required minimum distributions (RMDs) for 2020. This waiver applies to company savings plans and IRAs, including both traditional and Roth inherited IRAs.
spitty
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Re: RMDs May Not Be Required for 2020

Post by spitty »

Both of these articles say RMDs from inherited IRAs are not required for 2020. The text of the CARE act is difficult to translate!

https://www.forbes.com/sites/ashleaebel ... 56aff2cb69

https://www.aarp.org/money/investing/in ... nefit.html
my2swedes
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Re: RMDs May Not Be Required for 2020

Post by my2swedes »

I'm finding it very difficult to translate. I'm trying to figure out if RMDs from inherited inherited IRAs are required.

Our situation:

Person A passed away in 2018 at age 90.

The beneficiaries of his IRAS were his two adult children, C1 and C2, who each received half of the IRA.
In 2019, C1 and C2 each took the required RMDs from this inherited IRA based on their life expectancies.

Later in 2019, heir C2 passed away; the beneficiary of his inherited IRA was his spouse, S. Now that IRA is titled as an inherited inherited IRA, with spouse S's RMD's based on C2's RMD schedule.

in 2020, Is C1 (beneficiary of A) required to take an RMD from the IRA inherited from her father, A?
In 2020, is spouse S (the successor beneficiary of A) required to take an RMD from the inherited IRA that she inherited from her spouse, C2, who was the original beneficiary of his Parent, A.

Hoping for clarification. Thanks!
Last edited by my2swedes on Sat Mar 28, 2020 10:07 am, edited 1 time in total.
Small Savanna
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Re: RMDs May Not Be Required for 2020

Post by Small Savanna »

Even if RMDs are not required, it may be advantageous to take distributions now - I moved funds from VTSAX in a Vanguard inherited IRA into my regular Vanguard account two weeks ago, keeping them in VTSAX. By doing it now when the market is down, I pay less in taxes on the transferred shares, and future growth in value of the shares will be taxed at the capital gains rate rather than as ordinary income.
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Re: RMDs May Not Be Required for 2020

Post by LadyGeek »

I merged NavyIC3's thread into a similar discussion.
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michaeljc70
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Re: RMDs May Not Be Required for 2020

Post by michaeljc70 »

I doubt it would happen in most cases, but I'd be careful if you are close to the next tax bracket. Suspending RMDS could push you into the next bracket in future years. Of course, how your investments perform is also a factor and unpredictable.
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Re: RMDs May Not Be Required for 2020

Post by MathIsMyWayr »

Small Savanna wrote: Sat Mar 28, 2020 9:56 am Even if RMDs are not required, it may be advantageous to take distributions now - I moved funds from VTSAX in a Vanguard inherited IRA into my regular Vanguard account two weeks ago, keeping them in VTSAX. By doing it now when the market is down, I pay less in taxes on the transferred shares, and future growth in value of the shares will be taxed at the capital gains rate rather than as ordinary income.
Why are taxable accounts better than tax-deferred accounts except in unusual cases?
Small Savanna
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Re: RMDs May Not Be Required for 2020

Post by Small Savanna »

MathIsMyWayr wrote: Sat Mar 28, 2020 10:43 am
Small Savanna wrote: Sat Mar 28, 2020 9:56 am Even if RMDs are not required, it may be advantageous to take distributions now - I moved funds from VTSAX in a Vanguard inherited IRA into my regular Vanguard account two weeks ago, keeping them in VTSAX. By doing it now when the market is down, I pay less in taxes on the transferred shares, and future growth in value of the shares will be taxed at the capital gains rate rather than as ordinary income.
Why are taxable accounts better than tax-deferred accounts except in unusual cases?
This is a complicated subject that has been addressed in many threads by people more knowledgeable than me. It involves speculation about whether the market will go up or down, what future tax rates will be, and what your personal marginal bracket will be in the future. But let's say I move 100 shares of VTSAX at $61 per share from an IRA to a regular Vanguard account in 2020. I'll pay $6100 * 24% in federal taxes this year = $1464. Now suppose that I sell those shares in 2023 for $90 per share. I'll pay an additional 15% on the gain: 100*(90-61)*15% = $435. Total tax bill is $1899. On the other hand, if I leave the 100 shares in the IRA and withdraw them in 2023, I'll pay $9000 * 24% = $2160 in taxes.

This example assumes I will stay in the 24% marginal bracket. I personally think that tax rates will go up in the future, but others may differ.
MathIsMyWayr
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Re: RMDs May Not Be Required for 2020

Post by MathIsMyWayr »

Small Savanna wrote: Sat Mar 28, 2020 11:16 am
MathIsMyWayr wrote: Sat Mar 28, 2020 10:43 am
Small Savanna wrote: Sat Mar 28, 2020 9:56 am Even if RMDs are not required, it may be advantageous to take distributions now - I moved funds from VTSAX in a Vanguard inherited IRA into my regular Vanguard account two weeks ago, keeping them in VTSAX. By doing it now when the market is down, I pay less in taxes on the transferred shares, and future growth in value of the shares will be taxed at the capital gains rate rather than as ordinary income.
Why are taxable accounts better than tax-deferred accounts except in unusual cases?
This is a complicated subject that has been addressed in many threads by people more knowledgeable than me. It involves speculation about whether the market will go up or down, what future tax rates will be, and what your personal marginal bracket will be in the future. But let's say I move 100 shares of VTSAX at $61 per share from an IRA to a regular Vanguard account in 2020. I'll pay $6100 * 24% in federal taxes this year = $1464. Now suppose that I sell those shares in 2023 for $90 per share. I'll pay an additional 15% on the gain: 100*(90-61)*15% = $435. Total tax bill is $1899. On the other hand, if I leave the 100 shares in the IRA and withdraw them in 2023, I'll pay $9000 * 24% = $2160 in taxes.

This example assumes I will stay in the 24% marginal bracket. I personally think that tax rates will go up in the future, but others may differ.
It is not so complicated. It has nothing to do with market going up or down, but is a matter of "tax rates" now vs. later. If you have $1,000 pre-tax, either from your earnings or IRA, where would you save? Tax-deductible IRA or taxable?
Small Savanna
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Re: RMDs May Not Be Required for 2020

Post by Small Savanna »

MathIsMyWayr wrote: Sat Mar 28, 2020 11:28 am
Small Savanna wrote: Sat Mar 28, 2020 11:16 am
MathIsMyWayr wrote: Sat Mar 28, 2020 10:43 am
Small Savanna wrote: Sat Mar 28, 2020 9:56 am Even if RMDs are not required, it may be advantageous to take distributions now - I moved funds from VTSAX in a Vanguard inherited IRA into my regular Vanguard account two weeks ago, keeping them in VTSAX. By doing it now when the market is down, I pay less in taxes on the transferred shares, and future growth in value of the shares will be taxed at the capital gains rate rather than as ordinary income.
Why are taxable accounts better than tax-deferred accounts except in unusual cases?
This is a complicated subject that has been addressed in many threads by people more knowledgeable than me. It involves speculation about whether the market will go up or down, what future tax rates will be, and what your personal marginal bracket will be in the future. But let's say I move 100 shares of VTSAX at $61 per share from an IRA to a regular Vanguard account in 2020. I'll pay $6100 * 24% in federal taxes this year = $1464. Now suppose that I sell those shares in 2023 for $90 per share. I'll pay an additional 15% on the gain: 100*(90-61)*15% = $435. Total tax bill is $1899. On the other hand, if I leave the 100 shares in the IRA and withdraw them in 2023, I'll pay $9000 * 24% = $2160 in taxes.

This example assumes I will stay in the 24% marginal bracket. I personally think that tax rates will go up in the future, but others may differ.
It is not so complicated. It has nothing to do with market going up or down, but is a matter of "tax rates" now vs. later. If you have $1,000 pre-tax, either from your earnings or IRA, where would you save? Tax-deductible IRA or taxable?
By complicated, I mean that it requires you to make guesses about future facts. In the specific example I gave, I'm saving money on taxes by taking the withdrawal now rather than in 2023. But my example relies on guessing my marginal tax rate in 2023 both for ordinary income and for capital gains, and guessing that VTSAX will be worth more in 2023 than it is now. Change any of those assumptions and you can get a different answer.
M.Lee
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Re: RMDs May Not Be Required for 2020

Post by M.Lee »

spitty wrote: Sat Mar 28, 2020 6:57 am Both of these articles say RMDs from inherited IRAs are not required for 2020. The text of the CARE act is difficult to translate!

https://www.forbes.com/sites/ashleaebel ... 56aff2cb69

https://www.aarp.org/money/investing/in ... nefit.html
There are discrepancies in various sources and who is to know which is correct. AARP is not really clear enough. Don't forget, there are different rules for spousal inherited IRAS, and those of non-spouse.
MathIsMyWayr
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Re: RMDs May Not Be Required for 2020

Post by MathIsMyWayr »

Small Savanna wrote: Sat Mar 28, 2020 11:55 am
MathIsMyWayr wrote: Sat Mar 28, 2020 11:28 am
Small Savanna wrote: Sat Mar 28, 2020 11:16 am
MathIsMyWayr wrote: Sat Mar 28, 2020 10:43 am
Small Savanna wrote: Sat Mar 28, 2020 9:56 am Even if RMDs are not required, it may be advantageous to take distributions now - I moved funds from VTSAX in a Vanguard inherited IRA into my regular Vanguard account two weeks ago, keeping them in VTSAX. By doing it now when the market is down, I pay less in taxes on the transferred shares, and future growth in value of the shares will be taxed at the capital gains rate rather than as ordinary income.
Why are taxable accounts better than tax-deferred accounts except in unusual cases?
This is a complicated subject that has been addressed in many threads by people more knowledgeable than me. It involves speculation about whether the market will go up or down, what future tax rates will be, and what your personal marginal bracket will be in the future. But let's say I move 100 shares of VTSAX at $61 per share from an IRA to a regular Vanguard account in 2020. I'll pay $6100 * 24% in federal taxes this year = $1464. Now suppose that I sell those shares in 2023 for $90 per share. I'll pay an additional 15% on the gain: 100*(90-61)*15% = $435. Total tax bill is $1899. On the other hand, if I leave the 100 shares in the IRA and withdraw them in 2023, I'll pay $9000 * 24% = $2160 in taxes.

This example assumes I will stay in the 24% marginal bracket. I personally think that tax rates will go up in the future, but others may differ.
It is not so complicated. It has nothing to do with market going up or down, but is a matter of "tax rates" now vs. later. If you have $1,000 pre-tax, either from your earnings or IRA, where would you save? Tax-deductible IRA or taxable?
By complicated, I mean that it requires you to make guesses about future facts. In the specific example I gave, I'm saving money on taxes by taking the withdrawal now rather than in 2023. But my example relies on guessing my marginal tax rate in 2023 both for ordinary income and for capital gains, and guessing that VTSAX will be worth more in 2023 than it is now. Change any of those assumptions and you can get a different answer.
This is a text example of confusion. The only thing that matters is not taxes you will pay, but what you will have in your pocket after paying taxes.
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celia
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Re: RMDs May Not Be Required for 2020

Post by celia »

MathIsMyWayr wrote: Sat Mar 28, 2020 10:43 am Why are taxable accounts better than tax-deferred accounts except in unusual cases?
Look at the spending power of each dollar. A dollar in tax-deferred first has to be withdrawn and taxes paid on all of it at ordinary tax rates, leaving less than a dollar to spend. A dollar in taxable may need an asset to be sold, causing LT taxes to be due, only on the gain. This also leaves less than a dollar to spend. But look at the dollar in Roth. When it is withdrawn (after age 59.5), every single cent of it is available for spending!
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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F150HD
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Re: IRS Suspends RMD

Post by F150HD »

Alan S. wrote: Fri Mar 27, 2020 7:31 pm Inherited IRA RMDs are waived by the CARES Act.

However, unlike owned IRAs if a distribution (RMD or not) has been taken from an inherited IRA by a non spouse beneficiary, there is no way to get that money back into the inherited IRA.
:thumbsup

celia wrote: Sat Mar 28, 2020 12:35 pm 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.
your signature :thumbsup
Small Savanna
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Re: RMDs May Not Be Required for 2020

Post by Small Savanna »

MathIsMyWayr wrote: Sat Mar 28, 2020 12:32 pm
Small Savanna wrote: Sat Mar 28, 2020 11:55 am
MathIsMyWayr wrote: Sat Mar 28, 2020 11:28 am
Small Savanna wrote: Sat Mar 28, 2020 11:16 am
MathIsMyWayr wrote: Sat Mar 28, 2020 10:43 am
Why are taxable accounts better than tax-deferred accounts except in unusual cases?
This is a complicated subject that has been addressed in many threads by people more knowledgeable than me. It involves speculation about whether the market will go up or down, what future tax rates will be, and what your personal marginal bracket will be in the future. But let's say I move 100 shares of VTSAX at $61 per share from an IRA to a regular Vanguard account in 2020. I'll pay $6100 * 24% in federal taxes this year = $1464. Now suppose that I sell those shares in 2023 for $90 per share. I'll pay an additional 15% on the gain: 100*(90-61)*15% = $435. Total tax bill is $1899. On the other hand, if I leave the 100 shares in the IRA and withdraw them in 2023, I'll pay $9000 * 24% = $2160 in taxes.

This example assumes I will stay in the 24% marginal bracket. I personally think that tax rates will go up in the future, but others may differ.
It is not so complicated. It has nothing to do with market going up or down, but is a matter of "tax rates" now vs. later. If you have $1,000 pre-tax, either from your earnings or IRA, where would you save? Tax-deductible IRA or taxable?
By complicated, I mean that it requires you to make guesses about future facts. In the specific example I gave, I'm saving money on taxes by taking the withdrawal now rather than in 2023. But my example relies on guessing my marginal tax rate in 2023 both for ordinary income and for capital gains, and guessing that VTSAX will be worth more in 2023 than it is now. Change any of those assumptions and you can get a different answer.
This is a text example of confusion. The only thing that matters is not taxes you will pay, but what you will have in your pocket after paying taxes.
I don't think it's confusing at all. In the specific example I gave, if I take the RMD now and sell the shares in 2023, I'll have $9000 - $1899 = $7101 in my pocket in 2023. If I wait and take the IRA distribution in 2023, I will have $9000 - $2160 = $6840 in my pocket in 2023. This works because capital gains rates are lower than ordinary rates. If you think I'm wrong, be specific and give your example.
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Re: RMDs May Not Be Required for 2020

Post by MathIsMyWayr »

Small Savanna wrote: Sat Mar 28, 2020 12:48 pm
MathIsMyWayr wrote: Sat Mar 28, 2020 12:32 pm
Small Savanna wrote: Sat Mar 28, 2020 11:55 am
MathIsMyWayr wrote: Sat Mar 28, 2020 11:28 am
Small Savanna wrote: Sat Mar 28, 2020 11:16 am

This is a complicated subject that has been addressed in many threads by people more knowledgeable than me. It involves speculation about whether the market will go up or down, what future tax rates will be, and what your personal marginal bracket will be in the future. But let's say I move 100 shares of VTSAX at $61 per share from an IRA to a regular Vanguard account in 2020. I'll pay $6100 * 24% in federal taxes this year = $1464. Now suppose that I sell those shares in 2023 for $90 per share. I'll pay an additional 15% on the gain: 100*(90-61)*15% = $435. Total tax bill is $1899. On the other hand, if I leave the 100 shares in the IRA and withdraw them in 2023, I'll pay $9000 * 24% = $2160 in taxes.

This example assumes I will stay in the 24% marginal bracket. I personally think that tax rates will go up in the future, but others may differ.
It is not so complicated. It has nothing to do with market going up or down, but is a matter of "tax rates" now vs. later. If you have $1,000 pre-tax, either from your earnings or IRA, where would you save? Tax-deductible IRA or taxable?
By complicated, I mean that it requires you to make guesses about future facts. In the specific example I gave, I'm saving money on taxes by taking the withdrawal now rather than in 2023. But my example relies on guessing my marginal tax rate in 2023 both for ordinary income and for capital gains, and guessing that VTSAX will be worth more in 2023 than it is now. Change any of those assumptions and you can get a different answer.
This is a text example of confusion. The only thing that matters is not taxes you will pay, but what you will have in your pocket after paying taxes.
I don't think it's confusing at all. In the specific example I gave, if I take the RMD now and sell the shares in 2023, I'll have $9000 - $1899 = $7101 in my pocket in 2023. If I wait and take the IRA distribution in 2023, I will have $9000 - $2160 = $6840 in my pocket in 2023. This works because capital gains rates are lower than ordinary rates. If you think I'm wrong, be specific and give your example.
You won't have 100 shares after paying taxes when withdrawing from IRA. You only have 76 shares to invest in taxable.
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Re: RMDs May Not Be Required for 2020

Post by MathIsMyWayr »

celia wrote: Sat Mar 28, 2020 12:35 pm
MathIsMyWayr wrote: Sat Mar 28, 2020 10:43 am Why are taxable accounts better than tax-deferred accounts except in unusual cases?
Look at the spending power of each dollar. A dollar in tax-deferred first has to be withdrawn and taxes paid on all of it at ordinary tax rates, leaving less than a dollar to spend. A dollar in taxable may need an asset to be sold, causing LT taxes to be due, only on the gain. This also leaves less than a dollar to spend. But look at the dollar in Roth. When it is withdrawn (after age 59.5), every single cent of it is available for spending!
Irrelevant.
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1210sda
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Re: RMDs May Not Be Required for 2020

Post by 1210sda »

Thanks for bringing this up.

I too will consider doing a roth conversion with what would have been my RMD.
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Re: RMDs May Not Be Required for 2020

Post by Sheepdog »

I am just over half way in completing my RMD, but I will stop now, except that I will continue making QCD charitable donations for some of the remainder. I was planning on making some Roth conversions late in the year after the RMDs are complete. The conversions can not happen until the RMD is complete. So, does anyone know if Roth conversions can now be done if the RMDs are not complete. I doubt t, but does anyone know?

edit I read the AARP synopsis above on this subject. It said
Normally, RMDs cannot be converted to Roth IRAs, but now since there are no RMDs, you can withdraw IRA funds at low values and low tax rates and convert them to your Roth IRA. Yes, you pay taxes on the conversion, just like you would have on your RMD. But your RMD could not be converted to a Roth, so even though you paid the tax, you could not get the conversion benefit. Now, under this 2020 RMD waiver period, you can get more for the tax you pay by being able to convert the funds you withdraw to your Roth IRA at a relatively low tax cost
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Sandwich
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Re: IRS Suspends RMD

Post by Sandwich »

Gill wrote: Fri Mar 27, 2020 6:23 pm
jeep5ter wrote: Fri Mar 27, 2020 6:18 pm Question: if one has taken 2020 RMD, can it be reversed?
That’s the big question, particularly where more than 60 days has elapsed. It would only seem fair to allow the return of the amount distributed. Hoping this will be clarified.
Gill
+ 1

CARES Act wording implies that one can "repay" the RMD if it is "Coronavirus-related", i.e., diagnosis, diagnosis of spouse / dependent, certain adverse financial consequences, or "other factors as determined by the Secretary of the Treasury (or delegate)"

To "be actionable", I sent e-messages to my congressional delegation explaining my view of the fairness to allow RMDs to be returned by those who took them in early January. I asked them to contact Secretary Mnuchin to consider the fairness as an "other factor" for him to consider and then notify me of what they have done. This idea seems reasonable / fair.
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Re: IRS Suspends RMD

Post by Gill »

Sandwich wrote: Sat Mar 28, 2020 4:33 pm
Gill wrote: Fri Mar 27, 2020 6:23 pm
jeep5ter wrote: Fri Mar 27, 2020 6:18 pm Question: if one has taken 2020 RMD, can it be reversed?
That’s the big question, particularly where more than 60 days has elapsed. It would only seem fair to allow the return of the amount distributed. Hoping this will be clarified.
Gill
+ 1

CARES Act wording implies that one can "repay" the RMD if it is "Coronavirus-related", i.e., diagnosis, diagnosis of spouse / dependent, certain adverse financial consequences, or "other factors as determined by the Secretary of the Treasury (or delegate)"

To "be actionable", I sent e-messages to my congressional delegation explaining my view of the fairness to allow RMDs to be returned by those who took them in early January. I asked them to contact Secretary Mnuchin to consider the fairness as an "other factor" for him to consider and then notify me of what they have done. This idea seems reasonable / fair.
Good job. I’m relying on that language in repaying mine taken in January.
Gill
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Re: RMDs May Not Be Required for 2020

Post by WoodSpinner »

Sheepdog wrote: Sat Mar 28, 2020 3:25 pm I am just over half way in completing my RMD, but I will stop now, except that I will continue making QCD charitable donations for some of the remainder. I was planning on making some Roth conversions late in the year after the RMDs are complete. The conversions can not happen until the RMD is complete. So, does anyone know if Roth conversions can now be done if the RMDs are not complete. I doubt t, but does anyone know?

edit I read the AARP synopsis above on this subject. It said
Normally, RMDs cannot be converted to Roth IRAs, but now since there are no RMDs, you can withdraw IRA funds at low values and low tax rates and convert them to your Roth IRA. Yes, you pay taxes on the conversion, just like you would have on your RMD. But your RMD could not be converted to a Roth, so even though you paid the tax, you could not get the conversion benefit. Now, under this 2020 RMD waiver period, you can get more for the tax you pay by being able to convert the funds you withdraw to your Roth IRA at a relatively low tax cost
You may find this write up from Kitces helpful, it addresses your question directly

https://www.kitces.com/blog/analyzing-t ... -pandemic/

WoodSpinner
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celia
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Re: RMDs May Not Be Required for 2020

Post by celia »

Sheepdog wrote: Sat Mar 28, 2020 3:25 pm I was planning on making some Roth conversions late in the year after the RMDs are complete. The conversions can not happen until the RMD is complete. So, does anyone know if Roth conversions can now be done if the RMDs are not complete. I doubt t, but does anyone know?
Your RMD for 2020 was just changed to $0 and you have now completed it. So, convert away!
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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Re: RMDs May Not Be Required for 2020

Post by teacher »

Lynette wrote:
Bit of mess being too quick! In January I took QCDs, RMDs and had tax withheld. I do not want to reverse the RMDs. I did this early to simplify my taxes. Oh well.
I withdrew 2020 RMDs in mid January when the market was at its peak and don't regret it. Those who waited will have to pay 2020 RMDs over the next three years in addition to their usual increasing RMD withdrawals each year. This will increase their earned income each year by at least a third, possibly impacting their income tax rate and Medicare costs.
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Re: RMDs May Not Be Required for 2020

Post by michaeljc70 »

teacher wrote: Sat Mar 28, 2020 9:34 pm Lynette wrote:
Bit of mess being too quick! In January I took QCDs, RMDs and had tax withheld. I do not want to reverse the RMDs. I did this early to simplify my taxes. Oh well.
I withdrew 2020 RMDs in mid January when the market was at its peak and don't regret it. Those who waited will have to pay 2020 RMDs over the next three years in addition to their usual increasing RMD withdrawals each year. This will increase their earned income each year by at least a third, possibly impacting their income tax rate and Medicare costs.
How? If you have $200k of other income and a $20k RMD it isn't going to increase your income by a third if you don't take this years RMD.
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Re: RMDs May Not Be Required for 2020

Post by teacher »

Correction: RMD withdrawal funds are treated like ordinary income (not "earned income"). In the end, the outcome is the same whether it be earned income or ordinary income. The marginal tax rate will apply. A third of this year's RMD, may increase your marginal rate and effect your Medicare schedule for the next three years.
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Re: RMDs May Not Be Required for 2020

Post by Gill »

teacher wrote: Sat Mar 28, 2020 9:56 pm Correction: RMD withdrawal funds are treated like ordinary income (not "earned income"). In the end, the outcome is the same whether it be earned income or ordinary income. The marginal tax rate will apply. A third of this year's RMD, may increase your marginal rate and effect your Medicare schedule for the next three years.
What are you talking about? There’s no such requirement. One just continues on in 2021 and beyond as before.
Gill
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Leesbro63
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Re: RMDs May Not Be Required for 2020

Post by Leesbro63 »

My 83 year old mom took hers in February. Can this be reversed and qualify for the 2020 exemption as if it never happened?
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Re: RMDs May Not Be Required for 2020

Post by Gill »

Leesbro63 wrote: Sun Mar 29, 2020 6:45 am My 83 year old mom took hers in February. Can this be reversed and qualify for the 2020 exemption as if it never happened?
Yes. Roll it back into the IRA within 60 days.
Gill
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Re: RMDs May Not Be Required for 2020

Post by Leesbro63 »

Gill wrote: Sun Mar 29, 2020 6:47 am
Leesbro63 wrote: Sun Mar 29, 2020 6:45 am My 83 year old mom took hers in February. Can this be reversed and qualify for the 2020 exemption as if it never happened?
Yes. Roll it back into the IRA within 60 days.
Gill
Great info, Gill. It was Feb 20 so there’s time. It’s at Schwab. Can she just write a check back to the account with a letter of instruction that it was an RMD withdrawal that is to be re-deposited?
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teacher
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Re: RMDs May Not Be Required for 2020

Post by teacher »

I wrote:
RMD withdrawal funds are treated like ordinary income (not "earned income"). In the end, the outcome is the same whether it be earned income or ordinary income. The marginal tax rate will apply. A third of this year's RMD, may increase your marginal rate and effect your Medicare schedule for the next three years.
Gill wrote:
What are you talking about? There’s no such requirement. One just continues on in 2021 and beyond as before.
Thank you for bringing attention to my error, Gill. You made me second guess what I wrote, and after some research, I see I was wrong. RMDs are waived this year; they are entirely skipped.

My error stemmed from the bill's provision for early withdrawal from tax-deferred investments. This is from Fidelity: "The 10% early withdrawal penalty will be waived on aggregate distributions of up to $100,000 from certain workplace retirement plans and individual retirement accounts (IRAs) for COVID-19-related purposes. The individual can elect to pay the federal income tax on the distribution over 3 years or has the option to repay the distribution within a 3-year period to an eligible retirement plan."
https://www.fidelity.com/learning-cente ... us-package

So, those of us who withdrew before the pandemic and are beyond the 60 day rollback period have no recourse. I withdrew 2020 RMDs January 19th, 70 days ago (including weekends), and put the funds in a CD paying less than 2% for 9 months.
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Re: RMDs May Not Be Required for 2020

Post by Beatrix »

So if one skips the 2020 RMD, what divisor would be used to calculate their 2021 RMD? For example I subtract "1" from the divisor each year. Would I use the 2020 divisor in 2021?
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Re: RMDs May Not Be Required for 2020

Post by Gill »

Leesbro63 wrote: Sun Mar 29, 2020 7:01 am
Gill wrote: Sun Mar 29, 2020 6:47 am
Leesbro63 wrote: Sun Mar 29, 2020 6:45 am My 83 year old mom took hers in February. Can this be reversed and qualify for the 2020 exemption as if it never happened?
Yes. Roll it back into the IRA within 60 days.
Gill
Great info, Gill. It was Feb 20 so there’s time. It’s at Schwab. Can she just write a check back to the account with a letter of instruction that it was an RMD withdrawal that is to be re-deposited?
Just tell them it's a rollover contribution. Normally there would be a box to check for "rollover" which is the case with Vanguard. On the 1099-R next year it will show as a distribution but then you identify it as a rollover and it nets out to zero.
Gill
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Re: RMDs May Not Be Required for 2020

Post by Leesbro63 »

Gill wrote: Sun Mar 29, 2020 9:10 am
Leesbro63 wrote: Sun Mar 29, 2020 7:01 am
Gill wrote: Sun Mar 29, 2020 6:47 am
Leesbro63 wrote: Sun Mar 29, 2020 6:45 am My 83 year old mom took hers in February. Can this be reversed and qualify for the 2020 exemption as if it never happened?
Yes. Roll it back into the IRA within 60 days.
Gill
Great info, Gill. It was Feb 20 so there’s time. It’s at Schwab. Can she just write a check back to the account with a letter of instruction that it was an RMD withdrawal that is to be re-deposited?
Just tell them it's a rollover contribution. Normally there would be a box to check for "rollover" which is the case with Vanguard. On the 1099-R next year it will show as a distribution but then you identify it as a rollover and it nets out to zero.
Gill
Really great info, Gill. Thank you so much.
Old Guy
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Re: RMDs May Not Be Required for 2020

Post by Old Guy »

A little help please.

I took RMDs monthly since January with state and federal taxes paid. If I want to repay what repayment figure am I going to use, the amount before or after the taxes were paid? If after, what happens with the taxes I already paid? Are they reported and become deductions on my 2020 taxes?

Thanks.
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Re: RMDs May Not Be Required for 2020

Post by Gill »

Old Guy wrote: Sun Mar 29, 2020 9:58 am A little help please.

I took RMDs monthly since January with state and federal taxes paid. If I want to repay what repayment figure am I going to use, the amount before or after the taxes were paid? If after, what happens with the taxes I already paid? Are they reported and become deductions on my 2020 taxes?

Thanks.
Repay the gross amount and, yes, the taxes withheld will be a credit on your 2020 returns.
Gill
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Re: RMDs May Not Be Required for 2020

Post by Old Guy »

Gill, thank you.
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Re: RMDs May Not Be Required for 2020

Post by Alan S. »

Old Guy wrote: Sun Mar 29, 2020 9:58 am A little help please.

I took RMDs monthly since January with state and federal taxes paid. If I want to repay what repayment figure am I going to use, the amount before or after the taxes were paid? If after, what happens with the taxes I already paid? Are they reported and become deductions on my 2020 taxes?

Thanks.
Problem here.
You took 3 distributions and can only roll back one because of the one rollover limitation. However, if you qualify for the Corona virus related distribution, you can roll back the other two anytime in the next 3 years. You would just need to determine if you qualify or keep track to see if Congress or the IRS later determines that everyone automatically qualifies.
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Re: RMDs May Not Be Required for 2020

Post by teacher »

For those who already withdrew 2020 RMDs, I found this information in a Forbes article:
If you already took the 2020 RMD, you will have to include it in gross income and pay taxes on it. But you might have some options. You have up to 60 days to return a distribution to an IRA or deposit it in another qualified retirement account without owing taxes on it. You also might convert the amount into a Roth IRA…..Since the tax return filing deadline for 2019 income tax returns was extended to July 15, the deadline for making a 2019 contribution to an IRA also is extended to July 15, 2020.
https://www.forbes.com/sites/bobcarlson ... 31852e34f5

I withdrew 2020 RMDs 70 days ago, but not counting weekends, tomorrow, it will be 59 days. Does anyone know if weekends are counted when returning a distribution?
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Re: RMDs May Not Be Required for 2020

Post by Gill »

Alan S. wrote: Sun Mar 29, 2020 10:23 am
Old Guy wrote: Sun Mar 29, 2020 9:58 am A little help please.

I took RMDs monthly since January with state and federal taxes paid. If I want to repay what repayment figure am I going to use, the amount before or after the taxes were paid? If after, what happens with the taxes I already paid? Are they reported and become deductions on my 2020 taxes?

Thanks.
Problem here.
You took 3 distributions and can only roll back one because of the one rollover limitation. However, if you qualify for the Corona virus related distribution, you can roll back the other two anytime in the next 3 years. You would just need to determine if you qualify or keep track to see if Congress or the IRS later determines that everyone automatically qualifies.
Thanks, Alan. I hadn’t thought of that aspect. You’re right.
Gill
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Re: RMDs May Not Be Required for 2020

Post by pshonore »

teacher wrote: Sun Mar 29, 2020 10:30 am For those who already withdrew 2020 RMDs, I found this information in a Forbes article:
If you already took the 2020 RMD, you will have to include it in gross income and pay taxes on it. But you might have some options. You have up to 60 days to return a distribution to an IRA or deposit it in another qualified retirement account without owing taxes on it. You also might convert the amount into a Roth IRA…..Since the tax return filing deadline for 2019 income tax returns was extended to July 15, the deadline for making a 2019 contribution to an IRA also is extended to July 15, 2020.
https://www.forbes.com/sites/bobcarlson ... 31852e34f5

I withdrew 2020 RMDs 70 days ago, but not counting weekends, tomorrow, it will be 59 days. Does anyone know if weekends are counted when returning a distribution?
There may have been a holiday in there too, but AFAIK the deadline is 60 calendar days so if you took the RMD on Jan 31, you have until Mar 31 to return it. (29 days in Feb and 31 days in March.)
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teacher
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Re: RMDs May Not Be Required for 2020

Post by teacher »

pshonore wrote:
There may have been a holiday in there too, but AFAIK the deadline is 60 calendar days so if you took the RMD on Jan 31, you have until Mar 31 to return it. (29 days in Feb and 31 days in March.)
I withdrew the RMDs Monday, January 20th, so I guess I am doomed. But I found this:
For retirement accounts owners who took their RMD very early in the year, and for whom the 60-day rollover window has already expired, there is another potential approach. If it can be shown that the individual has been impacted by the COVID-19 crisis enough to qualify under the liberal guidelines outlined earlier for a Coronavirus-Related Distribution, then the rollover can still be completed… anytime for the next three years (from the date the distribution was received)!
https://www.kitces.com/blog/analyzing-t ... -pandemic/

Does that sound correct, and if so, please interpret it. Seems to me the COVID-19 crisis has impacted all of us, more or less.
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Re: RMDs May Not Be Required for 2020

Post by Silk McCue »

teacher wrote: Sun Mar 29, 2020 11:14 am ..

Does that sound correct, and if so, please interpret it. Seems to me the COVID-19 crisis has impacted all of us, more or less.
Go back to the article and read the description of CoronaVirus-Related Distribution rules. It appears that more is necessary, not less. You will have to decide.

Mirroring similar relief that has been provided to individuals in Federally declared disaster areas in the past (for things like hurricanes, wildfires, and floods), the CARES Act creates Coronavirus-Related Distributions. Coronavirus-Related Distributions are distributions of up to $100,000, made from IRAs, employer-sponsored retirement plans, or a combination both, which are made in 2020 by an individual who has been impacted by the Coronavirus because they:

Have been diagnosed with COVID-19;
Have a spouse or dependent who has been diagnosed with COVID-19;
Experience adverse financial consequences as a result of being quarantined, furloughed, being laid off, or having work hours reduced because of the disease;
Are unable to work because they lack childcare as a result of the disease;
Own a business that has closed or operate under reduced hours because of the disease; or
Meet some other reason that the IRS decides to say is OK.

Given the laundry list of potential individuals who may qualify for relief under this provision, it seems rather clear that Congressional intent was to make this provision broadly available. The IRS will likely operate in kind, and take a liberal view of who has been impacted by the Coronavirus enough to qualify for a Coronavirus-Related Distribution.
Cheers
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Re: RMDs May Not Be Required for 2020

Post by Small Savanna »

MathIsMyWayr wrote: Sat Mar 28, 2020 1:06 pm
Small Savanna wrote: Sat Mar 28, 2020 12:48 pm
MathIsMyWayr wrote: Sat Mar 28, 2020 12:32 pm
Small Savanna wrote: Sat Mar 28, 2020 11:55 am
MathIsMyWayr wrote: Sat Mar 28, 2020 11:28 am
It is not so complicated. It has nothing to do with market going up or down, but is a matter of "tax rates" now vs. later. If you have $1,000 pre-tax, either from your earnings or IRA, where would you save? Tax-deductible IRA or taxable?
By complicated, I mean that it requires you to make guesses about future facts. In the specific example I gave, I'm saving money on taxes by taking the withdrawal now rather than in 2023. But my example relies on guessing my marginal tax rate in 2023 both for ordinary income and for capital gains, and guessing that VTSAX will be worth more in 2023 than it is now. Change any of those assumptions and you can get a different answer.
This is a text example of confusion. The only thing that matters is not taxes you will pay, but what you will have in your pocket after paying taxes.
I don't think it's confusing at all. In the specific example I gave, if I take the RMD now and sell the shares in 2023, I'll have $9000 - $1899 = $7101 in my pocket in 2023. If I wait and take the IRA distribution in 2023, I will have $9000 - $2160 = $6840 in my pocket in 2023. This works because capital gains rates are lower than ordinary rates. If you think I'm wrong, be specific and give your example.
You won't have 100 shares after paying taxes when withdrawing from IRA. You only have 76 shares to invest in taxable.
Withholding isn't required on IRA distributions. You can in fact move 100 shares from an IRA to a taxable account and still have 100 shares. You are correct in pointing out that IRA distributions are taxable, and a distribution now will increase my taxes this year. However, if I EVER want to use the IRA money for anything, I can't avoid taxes - if I take the distribution in 2020 I owe 24%, and if I take the distribution in 20xx (where xx is any future year) I will still owe either 24% or whatever my marginal rate is in that year. In my example, I included the effect of taxes in both scenarios, and concluded that there might be a benefit of paying higher taxes this year in order to lower my taxes in a few years.

Tax deferral is a good thing up to a point. Once you've deferred enough income that your future marginal tax rate is just as high as your current marginal rate, then it isn't so great.
willift
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Re: RMDs May Not Be Required for 2020

Post by willift »

celia wrote: Sat Mar 28, 2020 7:15 pm Your RMD for 2020 was just changed to $0 and you have now completed it. So, convert away!
[ quote fixed by admin LadyGeek]

A question about QCDs.
If I don't have any RMD for 2020, doesn't that imply that I wont have any money available for a QCD. I thought QCDs were limited to your RMD $ total or 100K whichever was smaller.
kaneohe
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Re: RMDs May Not Be Required for 2020

Post by kaneohe »

willift wrote: Sun Mar 29, 2020 12:22 pm .....................................................

A question about QCDs.
If I don't have any RMD for 2020, doesn't that imply that I wont have any money available for a QCD. I thought QCDs were limited to your RMD $ total or 100K whichever was smaller.
Your last statement is not correct. https://www.kiplinger.com/article/taxes ... -know.html
willift
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Re: RMDs May Not Be Required for 2020

Post by willift »

kaneohe wrote: Sun Mar 29, 2020 1:02 pm
willift wrote: Sun Mar 29, 2020 12:22 pm .....................................................

A question about QCDs.
If I don't have any RMD for 2020, doesn't that imply that I wont have any money available for a QCD. I thought QCDs were limited to your RMD $ total or 100K whichever was smaller.
Your last statement is not correct. https://www.kiplinger.com/article/taxes ... -know.html
Help me understand. I read these lines from the Kiplinger article and it makes me think the QCD is tied to your RMD amount

"If this sounds like a strategy that could work for you, here are some things you need to know:
Each person can donate the full amount of his or her RMD, up to a maximum of $100,000 annually."
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dual
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Re: IRS Suspends RMD

Post by dual »

Alan S. wrote: Fri Mar 27, 2020 4:57 pm Yes, still count. You can do a QCD as part of your RMD or separately. In fact, those who will start RMDs at 72 will have either one or two tax years prior to RMDs in which they can do a QCD, which is still allowed at 70.5. 2020 will function like one of those years.
Please provide a reference for this statement. This would involve many $thousands so, much as I trust Bogleheads, this is trust but verify territory for me. :)
Silk McCue
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Re: RMDs May Not Be Required for 2020

Post by Silk McCue »

willift wrote: Sun Mar 29, 2020 1:10 pm
kaneohe wrote: Sun Mar 29, 2020 1:02 pm
willift wrote: Sun Mar 29, 2020 12:22 pm .....................................................

A question about QCDs.
If I don't have any RMD for 2020, doesn't that imply that I wont have any money available for a QCD. I thought QCDs were limited to your RMD $ total or 100K whichever was smaller.
Your last statement is not correct. https://www.kiplinger.com/article/taxes ... -know.html
Help me understand. I read these lines from the Kiplinger article and it makes me think the QCD is tied to your RMD amount

"If this sounds like a strategy that could work for you, here are some things you need to know:
Each person can donate the full amount of his or her RMD, up to a maximum of $100,000 annually."
Only if your RMD were greater than $100k would you not be able to do the entire RMD as a QCD. The $100k is the only limit that exists unless your balance is less than $100kmof course.

Cheers
JW-Retired
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Re: IRS Suspends RMD

Post by JW-Retired »

Alan S. wrote: Fri Mar 27, 2020 4:09 pm
NavyIC3 wrote: Fri Mar 27, 2020 10:00 am IRS suspended the RMD from 401's and IRA's for 2020. Might be a good idea to do a Roth conversion for the amount of the RMD.
Yes, treat this like you are back in your pre RMD years.
Alan,
In my case it's still in a 401k, but I'm way into my RMD years and need the money. It's been set up on an autopilot so the 401k administrator sends me the RMD amount in a couple of pieces on fixed dates of the year. If I do nothing will they still send me the RMD amounts.... or will I need to do something?
thanks,
JW
Retired at Last
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