How does the IRS know the value of my 401K at end of year for RMDs

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Lynette
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How does the IRS know the value of my 401K at end of year for RMDs

Post by Lynette »

How does the IRS know the value of my 401K / IRA at the end of the year to calculate RMDs? 2017 was the first year I had to take RMDs and my former employer calculated the amount of the RMD. I was wondering if that information is given to the IRS as I think there are large penalties if you do not take out enough. I'm rolling over my 401K to Vanguard and Fidelity at the moment so that I can take QCDs next year. So next year will both Vanguard and Fidelity report the balance of my IRA to the IRS so that they can verify I took out a large enough RMD?
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by Silk McCue »

"The custodians that administer your account have to report what your RMDs are. They send that report to you and to the IRS. The IRS knows what you should have taken, and it also knows what you did take out. They're going to catch you."


https://www.kiplinger.com/article/taxes ... -rmds.html
Gill
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by Gill »

Form 5498 is filed by your IRA custodian with the IRS reporting the value of your account.
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by WhiteMaxima »

Just be safe. Do more than RMD. I think your 401k will tell you what the RMD number.
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Lynette
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by Lynette »

Thanks - I'm sure I've taken out enough for 2017. :D I'm trying to figure out my taxes for 2017. Medicare created a new group so I have to pay additional IRMAA. Its difficult to plan one's taxes as they only made this change at the end of 2017 for 2018.
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by ERISA Stone »

The IRS won't know that your 401k distribution satisfies the minimum requirement. RMDs aren't required for an active participant in a 401k if the participant is not a 5% owner. The plan could opt to require distributions at 70.5. I think the penalty is 50% of the required distribution amount so it's best not to take a chance. My experience is the IRS will waive the 50% as long as you have a legitimate reason.
delamer
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by delamer »

WhiteMaxima wrote: Tue Dec 12, 2017 6:26 pm Just be safe. Do more than RMD. I think your 401k will tell you what the RMD number.
Why would you take more than the RMD (unless you need the money for expenses or are doing a Roth conversion), and pay taxes on the withdrawal and lose the continued tax deferral on earnings?
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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Lynette
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by Lynette »

delamer wrote: Tue Dec 12, 2017 7:26 pm
WhiteMaxima wrote: Tue Dec 12, 2017 6:26 pm Just be safe. Do more than RMD. I think your 401k will tell you what the RMD number.
Why would you take more than the RMD (unless you need the money for expenses or are doing a Roth conversion), and pay taxes on the withdrawal and lose the continued tax deferral on earnings?
I did some market timing and thought the market was becoming overheated, so I took an additional amount from my 401K for a new driveway. I did the withdrawal online and my employer sent me the Roth portion of my 401K. Before I looked at it closely I paid additional estimated taxes as my employer did not take out enough for the RMD. I did not dispute this as it wasn't large and a hassle with paperwork to roll it over to my Roth IRA. I'm also having money take out of my SS and pensions. If I'm correct, I'll get a federal refund of about $10,000!

Incidentally one has to pay RMDs on Roth 401Ks as well. My company's plan did not allow one to roll into a 401K IRA unless it had been in there for 5 years. This is why I stopped making 401K Roth contributions as I knew I was going to retire.
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by itstoomuch »

:annoyed The Minions, who work for the badest person/organization use to do the tabular work for the IRS. It's rumored that they have found someone even bader. Cru was a pushover badie compared to the new badie.
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by JW-Retired »

Lynette wrote: Tue Dec 12, 2017 6:18 pm How does the IRS know the value of my 401K / IRA at the end of the year to calculate RMDs? 2017 was the first year I had to take RMDs and my former employer calculated the amount of the RMD. I was wondering if that information is given to the IRS as I think there are large penalties if you do not take out enough. I'm rolling over my 401K to Vanguard and Fidelity at the moment so that I can take QCDs next year. So next year will both Vanguard and Fidelity report the balance of my IRA to the IRS so that they can verify I took out a large enough RMD?
The RMD you must take during this year (2017) is based on the 401k/IRA values at the end of 2016. It's a percentage of the account balances on 12/31/2016. The IRS knows those balances because Vanguard/Fidelity/401k admins tells them what it is in the 5498 forms they sent to you & IRS in May 2017. (Possibly it's a different form for a 401k.)

Is that the source of your confusion?
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by Spirit Rider »

There is no IRS reporting of individual 401k year end balances or if RMDs are required. The only year-end reporting for 401k plans is for the plan as a whole via one of the versions of Form 5500. Unlike IRAs, 401k plan administrators are required to distribute RMDs. These are reported on Form 1099-R.

For a pre-tax traditional, SEP or SIMPLE IRA, Form 5498 reports the year-end FMV and indicate if an RMD is required for the next year (except for an inherited IRA). You would think that with such straight-forward reporting, the IRS could aggregate all Form 5498s for a taxpayer and perform simple matching.

To my knowledge the IRS has never issued CP-2000 notices for failure to take RMDs. However, nothing stops them from beginning in any given year. Considering that there is a 50% penalty for failure to take RMDs I would make sure you take them. I wouldn't rely on getting a waiver of the penalty, the IRS' leniency in granting them could also change at any time.
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Lynette
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by Lynette »

Thank you for all of the assistance. The reason I asked the question is that I am in the process of rolling over my 401K to Vanguard and Fidelity IRA's. I wanted to know how the reporting worked so that I can fill in my 1040 correctly. I understand that the balance for my 401K at the end of 2016 needs to be used for determining my RMDs. However at the moment the balance in my 401K is 0 as I'm in the process of rolling it over. The checks are somewhere in the mail or UPS so for now I'm nearly 100% cash! I asked for smaller amounts to see how it worked. As it went well, I then asked for addition checks for the balance. Fidelity has a fancy new office close to me so I took the check to them. I sent the other check to Vanguard via UPS and they received it. I should receive the final two checks today.

Next year I'm going to take QCD from both Fidelity and Vanguard IRAs as well as RMDs. There was another helpful thread that showed how to do this and the IRS reporting: viewtopic.php?f=2&t=233524&p=3646607#p3646607

Thank you

Lynette
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by JW-Retired »

Spirit Rider wrote: Tue Dec 12, 2017 9:02 pm There is no IRS reporting of individual 401k year end balances or if RMDs are required. The only year-end reporting for 401k plans is for the plan as a whole via one of the versions of Form 5500. Unlike IRAs, 401k plan administrators are required to distribute RMDs. These are reported on Form 1099-R.
OP shouldn't need to wait for the 1099-R. I've found my own 401k always has my RMD amount available on-line just a few working days after the first of the year. I doubt if they are special.
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by The Wizard »

Lynette wrote: Wed Dec 13, 2017 5:27 am Thank you for all of the assistance. The reason I asked the question is that I am in the process of rolling over my 401K to Vanguard and Fidelity IRA's. I wanted to know how the reporting worked so that I can fill in my 1040 correctly. I understand that the balance for my 401K at the end of 2016 needs to be used for determining my RMDs. However at the moment the balance in my 401K is 0 as I'm in the process of rolling it over...
Hmmm, I think this might make things tricky.
We need to take RMDs separately from 401(k) and tIRA accounts. So it might have been better to have taken your 401k RMD already and then roll the remainder over to your IRA.
But with money being fungible, as they say, taking your total RMD out of your tIRA once the funds land there should be functionally the same...
Attempted new signature...
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by spectec »

Spirit Rider wrote: Tue Dec 12, 2017 9:02 pm There is no IRS reporting of individual 401k year end balances or if RMDs are required. The only year-end reporting for 401k plans is for the plan as a whole via one of the versions of Form 5500. Unlike IRAs, 401k plan administrators are required to distribute RMDs. These are reported on Form 1099-R.

For a pre-tax traditional, SEP or SIMPLE IRA, Form 5498 reports the year-end FMV and indicate if an RMD is required for the next year (except for an inherited IRA). You would think that with such straight-forward reporting, the IRS could aggregate all Form 5498s for a taxpayer and perform simple matching.

To my knowledge the IRS has never issued CP-2000 notices for failure to take RMDs. However, nothing stops them from beginning in any given year. Considering that there is a 50% penalty for failure to take RMDs I would make sure you take them. I wouldn't rely on getting a waiver of the penalty, the IRS' leniency in granting them could also change at any time.
Excellent advice all around.
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by JW-Retired »

The Wizard wrote: Wed Dec 13, 2017 7:43 am
Lynette wrote: Wed Dec 13, 2017 5:27 am Thank you for all of the assistance. The reason I asked the question is that I am in the process of rolling over my 401K to Vanguard and Fidelity IRA's. I wanted to know how the reporting worked so that I can fill in my 1040 correctly. I understand that the balance for my 401K at the end of 2016 needs to be used for determining my RMDs. However at the moment the balance in my 401K is 0 as I'm in the process of rolling it over...
Hmmm, I think this might make things tricky.
We need to take RMDs separately from 401(k) and tIRA accounts. So it might have been better to have taken your 401k RMD already and then roll the remainder over to your IRA.
But with money being fungible, as they say, taking your total RMD out of your tIRA once the funds land there should be functionally the same...
Yeah, maybe tricky. If this is really the RMD Lynette is supposed to take for 2017, I'm puzzled that the 401k didn't make her take her RMD as a first separate withdrawal. As I recall mine does that. I wonder if IRS is going to understand that it's "functionally the same" as you say? I don't think it's legit to rollover your RMD, even if it has the same effect in the end. But maybe Lynette has already taken all the RMD prior to this rollover? I wasn't sure about that.
IRS wrote: Can RMD amounts be rolled over into another tax-deferred account?
No. Please refer to Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs), for additional information.
Would a 401k be different?
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Lynette
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by Lynette »

I took my RMD in January which my Megacorp designated as the required amount. I took a further distribution in June. I've started the rollover in December so that I can take QCDs next year. My confusion was how the IRS would know the balance on my 401K on 12/31/2016 to ensure that I had taken sufficient money for the RMD. As I mentioned my balance on my 401K is 0 now as I'm doing a rollover. As Spirit Rider mentioned 401K are required to distribute RMDs so that answers my question.

As I took the initial distribution in January and my company did not withhold enough taxes, I've been throwing money into doing estimated tax payments. This is why I will get a large refund. Its taken me a lot of time to sort out all the loose ends in my first year in retirement - RMDs, pensions, HRAs, Medicare premiums and Medigap and Drug payments.
Last edited by Lynette on Wed Dec 13, 2017 9:09 am, edited 1 time in total.
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by pshonore »

And there's the fact that the first RMD can be deferred until April 1 of the following year. Does that apply for 401K RMDs and does it also apply to people who continue working past 70 1/2?
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Lynette
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by Lynette »

pshonore wrote: Wed Dec 13, 2017 9:05 am And there's the fact that the first RMD can be deferred until April 1 of the following year. Does that apply for 401K RMDs and does it also apply to people who continue working past 70 1/2?
I worked till I was 73 and my 401K was with my employer so I did not have to take RMDs until I retired.
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by pshonore »

Lynette wrote: Wed Dec 13, 2017 9:10 am
pshonore wrote: Wed Dec 13, 2017 9:05 am And there's the fact that the first RMD can be deferred until April 1 of the following year. Does that apply for 401K RMDs and does it also apply to people who continue working past 70 1/2?
I worked till I was 73 and my 401K was with my employer so I did not have to take RMDs until I retired.
I know that but do you have until April 1 of the following year to complete your first RMD like someone turning 70 1/2 this year?
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by ERISA Stone »

pshonore wrote: Wed Dec 13, 2017 9:43 am
Lynette wrote: Wed Dec 13, 2017 9:10 am
pshonore wrote: Wed Dec 13, 2017 9:05 am And there's the fact that the first RMD can be deferred until April 1 of the following year. Does that apply for 401K RMDs and does it also apply to people who continue working past 70 1/2?
I worked till I was 73 and my 401K was with my employer so I did not have to take RMDs until I retired.
I know that but do you have until April 1 of the following year to complete your first RMD like someone turning 70 1/2 this year?
It depends on the plan. A 401k participant has the option to take the initial RMD the following April 1, whether the plan states an RMD should be taken at 70.5 or at termination.
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by ERISA Stone »

JW-Retired wrote: Wed Dec 13, 2017 7:33 am
Spirit Rider wrote: Tue Dec 12, 2017 9:02 pm There is no IRS reporting of individual 401k year end balances or if RMDs are required. The only year-end reporting for 401k plans is for the plan as a whole via one of the versions of Form 5500. Unlike IRAs, 401k plan administrators are required to distribute RMDs. These are reported on Form 1099-R.
OP shouldn't need to wait for the 1099-R. I've found my own 401k always has my RMD amount available on-line just a few working days after the first of the year. I doubt if they are special.
JW
Do you remember the vendor for the website? I've never worked with a plan that has that feature.
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by Spirit Rider »

pshonore wrote: Wed Dec 13, 2017 9:43 am
Lynette wrote: Wed Dec 13, 2017 9:10 am
pshonore wrote: Wed Dec 13, 2017 9:05 am And there's the fact that the first RMD can be deferred until April 1 of the following year. Does that apply for 401K RMDs and does it also apply to people who continue working past 70 1/2?
I worked till I was 73 and my 401K was with my employer so I did not have to take RMDs until I retired.
I know that but do you have until April 1 of the following year to complete your first RMD like someone turning 70 1/2 this year?
Yes, but that would negate the value of the QCD for next year. By taking the RMD this year, that allows a QCD >= the RMD from the IRA next year to satisfy the 2018 RMD requirement.

Of course, the best thing to do is to rollover the 401k in the year prior to when you turn 70 1/2 or retire. Most people don't realize this or don't really make the final decision to retire until after the year starts.
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by JW-Retired »

Lynette wrote: Wed Dec 13, 2017 9:03 am I took my RMD in January which my Megacorp designated as the required amount. I took a further distribution in June. I've started the rollover in December so that I can take QCDs next year. My confusion was how the IRS would know the balance on my 401K on 12/31/2016 to ensure that I had taken sufficient money for the RMD. As I mentioned my balance on my 401K is 0 now as I'm doing a rollover. As Spirit Rider mentioned 401K are required to distribute RMDs so that answers my question.

As I took the initial distribution in January and my company did not withhold enough taxes, I've been throwing money into doing estimated tax payments. This is why I will get a large refund. Its taken me a lot of time to sort out all the loose ends in my first year in retirement - RMDs, pensions, HRAs, Medicare premiums and Medigap and Drug payments.
OK, I'm worrying about nothing. :oops:
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by JW-Retired »

ERISA Stone wrote: Wed Dec 13, 2017 10:39 am
JW-Retired wrote: Wed Dec 13, 2017 7:33 am
Spirit Rider wrote: Tue Dec 12, 2017 9:02 pm There is no IRS reporting of individual 401k year end balances or if RMDs are required. The only year-end reporting for 401k plans is for the plan as a whole via one of the versions of Form 5500. Unlike IRAs, 401k plan administrators are required to distribute RMDs. These are reported on Form 1099-R.
OP shouldn't need to wait for the 1099-R. I've found my own 401k always has my RMD amount available on-line just a few working days after the first of the year. I doubt if they are special.
JW
Do you remember the vendor for the website? I've never worked with a plan that has that feature.
My current 401k admin is Voya. Only account holders would be able to get into the website. I guess it could be something driven by my former employer dictates? Apologies, but I don't want to disclosed where I worked.
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by celia »

Spirit Rider wrote: Wed Dec 13, 2017 11:05 am
pshonore wrote: Wed Dec 13, 2017 9:43 am
Lynette wrote: Wed Dec 13, 2017 9:10 am
pshonore wrote: Wed Dec 13, 2017 9:05 am And there's the fact that the first RMD can be deferred until April 1 of the following year. Does that apply for 401K RMDs and does it also apply to people who continue working past 70 1/2?
I worked till I was 73 and my 401K was with my employer so I did not have to take RMDs until I retired.
I know that but do you have until April 1 of the following year to complete your first RMD like someone turning 70 1/2 this year?
Yes, but that would negate the value of the QCD for next year. By taking the RMD this year, that allows a QCD >= the RMD from the IRA next year to satisfy the 2018 RMD requirement.

Of course, the best thing to do is to rollover the 401k in the year prior to when you turn 70 1/2 or retire. Most people don't realize this or don't really make the final decision to retire until after the year starts.
Lynette took RMDs from her 401K earlier this year. There are no RMDs for the tIRA this year since last December's balance was 0 (unless she also had tIRAs separate from this 401K rollover).
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Lynette
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by Lynette »

Thanks for answers and sorry for confusion. The only reason I'm rolling over my 401K in December, 2017 is because I want to be able to take QCDs in 2018 to lower my MAGI. I knew nothing about IRMAA before retiring. I was privileged to have a good healthcare package for which I paid about $2500 p.a. Next year in premiums, Medigap and Drug plan, this will be over $7,000 - and I take one drug and rarely visit a doctor. Such is ignorance in the workplace about IRMAAs. Most of my former colleagues also have pensions and they will also be caught by Medicare IRMAA premiums.

I do not have a tIRA - only Roth IRA and taxable. I'm quite reluctant to roll over my 401K as I had excellent low-cost funds including a Stable Value fund that was paying about 2%. At the moment, I'm expecting UPS to deliver my checks from my former employer so that I can get them to Fidelity and Vanguard.
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by delamer »

Lynette wrote: Tue Dec 12, 2017 7:43 pm
delamer wrote: Tue Dec 12, 2017 7:26 pm
WhiteMaxima wrote: Tue Dec 12, 2017 6:26 pm Just be safe. Do more than RMD. I think your 401k will tell you what the RMD number.
Why would you take more than the RMD (unless you need the money for expenses or are doing a Roth conversion), and pay taxes on the withdrawal and lose the continued tax deferral on earnings?
I did some market timing and thought the market was becoming overheated, so I took an additional amount from my 401K for a new driveway. I did the withdrawal online and my employer sent me the Roth portion of my 401K. Before I looked at it closely I paid additional estimated taxes as my employer did not take out enough for the RMD. I did not dispute this as it wasn't large and a hassle with paperwork to roll it over to my Roth IRA. I'm also having money take out of my SS and pensions. If I'm correct, I'll get a federal refund of about $10,000!

Incidentally one has to pay RMDs on Roth 401Ks as well. My company's plan did not allow one to roll into a 401K IRA unless it had been in there for 5 years. This is why I stopped making 401K Roth contributions as I knew I was going to retire.

Just wanted to be clear that I wasn't criticizing your actions.

I just thought that White Maxima's comment of "Do more than the RMD" was too flippant. In most cases -- sounds like your Roth 401(k) was a complication -- it should not be difficult to get your RMD right. So why take out more than required (or needed) when you can get the amount right?
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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Lynette
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by Lynette »

delamer wrote: Thu Dec 14, 2017 10:00 am
Lynette wrote: Tue Dec 12, 2017 7:43 pm
delamer wrote: Tue Dec 12, 2017 7:26 pm
WhiteMaxima wrote: Tue Dec 12, 2017 6:26 pm Just be safe. Do more than RMD. I think your 401k will tell you what the RMD number.
Why would you take more than the RMD (unless you need the money for expenses or are doing a Roth conversion), and pay taxes on the withdrawal and lose the continued tax deferral on earnings?
I did some market timing and thought the market was becoming overheated, so I took an additional amount from my 401K for a new driveway. I did the withdrawal online and my employer sent me the Roth portion of my 401K. Before I looked at it closely I paid additional estimated taxes as my employer did not take out enough for the RMD. I did not dispute this as it wasn't large and a hassle with paperwork to roll it over to my Roth IRA. I'm also having money take out of my SS and pensions. If I'm correct, I'll get a federal refund of about $10,000!

Incidentally one has to pay RMDs on Roth 401Ks as well. My company's plan did not allow one to roll into a 401K IRA unless it had been in there for 5 years. This is why I stopped making 401K Roth contributions as I knew I was going to retire.

Just wanted to be clear that I wasn't criticizing your actions.

I just thought that White Maxima's comment of "Do more than the RMD" was too flippant. In most cases -- sounds like your Roth 401(k) was a complication -- it should not be difficult to get your RMD right. So why take out more than required (or needed) when you can get the amount right?
Thanks for your advice I did not take it as a criticism. I will likely take out slightly higher RMDS that Fidelity or Vanguard estimates as I'm neurotic about not paying enough taxes.

The problem with estimating IRMAA payments is that they only notified me of a new group in November, 2017 so I cannot go back now and modify my withdrawal of RDMS and I will likely have to pay the higher IRMAA in 2018 and 2019 as there is a two-year look back. It looks as if Medicare is desperately trying to find any new source of revenue.
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by JW-Retired »

Lynette wrote: Thu Dec 14, 2017 11:18 am Thanks for your advice I did not take it as a criticism. I will likely take out slightly higher RMDS that Fidelity or Vanguard estimates as I'm neurotic about not paying enough taxes.
Lynette,
You really don't need to do "slightly higher". Fidelity or Vanguard don't "estimate" your RMDs they compute them exactly. All they need to know is the year you turned 70.5 and what your IRA account balance is on 12/31/2017, which they obviously will know.

See this work sheet for the exact calculation they do.
https://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf
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Lynette
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Re: How does the IRS know the value of my 401K at end of year for RMDs

Post by Lynette »

JW-Retired wrote: Thu Dec 14, 2017 5:44 pm
Lynette wrote: Thu Dec 14, 2017 11:18 am Thanks for your advice I did not take it as a criticism. I will likely take out slightly higher RMDS that Fidelity or Vanguard estimates as I'm neurotic about not paying enough taxes.
Lynette,
You really don't need to do "slightly higher". Fidelity or Vanguard don't "estimate" your RMDs they compute them exactly. All they need to know is the year you turned 70.5 and what your IRA account balance is on 12/31/2017, which they obviously will know.

See this work sheet for the exact calculation they do.
https://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf
JW
Thank you.
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