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Leroy Jones
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Post by Leroy Jones » Tue Mar 13, 2018 9:30 am

Folks, While RMD's are a few years away I have a question on how they work. In the year that you turn 70.5 will distributions made before that actual date that you turn 70.5 be counted towards your RMD or will only the money taken after the date you turn 70.5 count towards your RMD?

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Post by midareff » Tue Mar 13, 2018 9:39 am

My letter from Vanguard.

Because you're turning age 70½ this year, you must begin taking annual required minimum distributions (RMDs)
from your IRA (traditional IRA, rollover IRA, SIMPLE IRA or SEP-IRA) assets with Vanguard. For additional information
about RMDs, log on to your Vanguard account and, from the My Accounts dropdown, select Account
maintenance; then under Services, select Required minimum distributions (RMD).
As a courtesy to you, Vanguard is now providing you with this RMD notification letter that contains your RMD
amount and other important information. A confirmation statement detailing your RMD is enclosed. If you have
multiple IRAs, the IRA RMD amount listed below represents the total RMD for all of your Vanguard IRAs.

If you have more than one IRA, you can take your total RMD amount from any one or a combination of your IRAs. If
you withdraw less than the RMD amount, you may owe a 50% federal penalty tax on the difference.
You typically must take your RMD by December 31 each year; however, because this is your first RMD, you're
allowed to delay it until April 1 of next year. If you decide to delay your first RMD until next year, you'll have to take
two distributions during that calendar year. This can put you in a higher tax bracket for that year, significantly
increasing the tax you owe.

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Post by JW-Retired » Tue Mar 13, 2018 9:48 am

70.5 just determines the year you need do start RMDs. Any day of that year could be the date when you do withdraw it.
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Post by vested1 » Tue Mar 13, 2018 10:02 am

Also be aware that RMD percentages are different depending on if you were born in the 1st half of the year or the 2nd half. If you were born in the 2nd half you wait a year longer but the percentage of the 1st RMD is higher.

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Post by dodecahedron » Tue Mar 13, 2018 10:12 am

JW-Retired wrote:
Tue Mar 13, 2018 9:48 am
70.5 just determines the year you need do start RMDs. Any day of that year could be the date when you do withdraw it.
However, if you want to take all or any part of your RMD as a QCD (Qualified Charitable Distribution), you need to bear in mind that QCDs can't be distributed until after you reach 70.5. So if you have a $3K RMD and you want to take $1K as QCD, you can take the $2K any time, but hold off on the $1K QCD until after you reach 70.5.

Also, bear in mind that the first dollars to come out of your account will be treated as your RMD until the RMD is satisfied. In particular, you can't do any Roth conversions until after you have met your RMD requirement. So, to continue the example above, if you also wanted to do a Roth conversion in the same year, you would have to wait until AFTER your QCD.

Alan S.
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Post by Alan S. » Tue Mar 13, 2018 5:34 pm

Another planning option exists for the year you reach 70.5. For that first RMD year you can defer ALL or PART of that first RMD until as late as 4/1 of the following year. This is a once in a lifetime option. However, deferring will increase the following year taxable income by the amount you deferred from the first year. Deferring will also have a major effect on other transactions, such as QCDs and Roth conversions and therefore timing of transactions becomes a little more complex.

One interesting option applies if you have a 401k plan with appreciated stock bearing NUA potential. If you delay your 401k first year RMD, and do your lump sum distribution before 4/1 of the next year, the distribution of employer stock will satisfy both year's 401k RMDs without increasing your taxable income more than it already would have been. In other words, the cost basis of the shares will do double duty with two years of RMDs satisfied for the same tax liability you would have had if you had done the 401k distribution before 70.5.

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