RMD

[NoNamePerson]

I get a notification from IRA holder. It comes in mail sometime in January - maybe late January. Would have to dig out paper work but it comes each year. They don't "take" out the amount. I contact them to let them know when to cut check. You have till end of year. And I tend to round up to the nearest thousand sometimes.  But you can just take the required amount.

[TheOtherMe]

My dad got a letter earlier this year telling the amount and date that it had to be taken by.  The letter also included an option to let the bank take the RMD on December 1.  So that nobody has to remember, he signed for the bank to do the RMD on December 1. 

My dad has only one IRA.  He doesn't need the money and doesn't want to pay taxes on it, so he takes the RMD.

[mollyanna58]

My parents have IRAs with several different custodians.  Most of them send letters in January, stating the RMD is $x.xx which must be taken by (date; I think it's December 31).

My parents set up automatic withdrawals for a couple of the IRAs; the rest they have to call in or go online, tell the custodian how much they wanted (minimum or more) and how much to withhold for federal and state taxes.

If you only plan on taking the RMD each year, call the custodian and set up an automatic withdrawal.

[tallguy]

Pretty sure that you can take the cumulative value of all IRA's to figure the RMD amount but that you can take the entire amount from any of them.  I don't think you need to take a RMD from each based on its own value.  Other assets like 401k's I think do have to be treated separately from IRA's however.  You would then have a RMD from IRA accounts and a separate RMD from a 401k.  I think. 

[tallguy]

Jun 19, 2016 0:46:05 GMT -5 @patstab said:

Will each bank, company, etc where my husband has IRA's and 401K's automatically take so much money out of each

account for his RMD or just send us a note saying he needs to take so much. We aren't sure how this works, next year

will be his first withdrawa, he will be 70.5 in February.l. I looked at the tables for him, married filing jointly and found

its 27.4 divided into the principal for his first year. We are wanting to just take it all out of one, going to let them deduct

20% in taxes and submit.

Just wondering how this works.

If he turns 70.5 in February then he will not need to take an RMD in 2017.  His first RMD (for 2017) would be required by April 1, 2018.  The thing to be concerned about though is that by waiting until then he would be forced to take and pay taxes on two RMD's in the same tax year. 

2017 RMD - Required by April 1, 2018
2018 RMD - Required by December 31, 2018

Make sure you are clear about all of the implications either way.

(Again, my understanding of it.) 

[NoNamePerson]

Jun 19, 2016 14:18:31 GMT -5 tallguy said:

Jun 19, 2016 0:46:05 GMT -5 @patstab said:

Will each bank, company, etc where my husband has IRA's and 401K's automatically take so much money out of each

account for his RMD or just send us a note saying he needs to take so much. We aren't sure how this works, next year

will be his first withdrawa, he will be 70.5 in February.l. I looked at the tables for him, married filing jointly and found

its 27.4 divided into the principal for his first year. We are wanting to just take it all out of one, going to let them deduct

20% in taxes and submit.

Just wondering how this works.

If he turns 70.5 in February then he will not need to take an RMD in 2017.  His first RMD (for 2017) would be required by April 1, 2018.  The thing to be concerned about though is that by waiting until then he would be forced to take and pay taxes on two RMD's in the same tax year. 

2017 RMD - Required by April 1, 2018
2018 RMD - Required by December 31, 2018

Make sure you are clear about all of the implications either way.

(Again, my understanding of it.) 

I think you are correct. I forgot about taking my first one before end of year. I looked at my paper work and I did take it in March the next year. And after that just made sure I took it before 12/31.

Glad you posted that since I gave "sorta bad info in my post"   

[Deleted]

Just be sure to remember what tallguy said.  You can take all of your IRA RMD from one account, but you can't include the RMD from a 401k.

I read somewhere just recently that a lot of people screw this up and owe the IRS 50% of what they should have taken separately from the 401k.

[tallguy]

If that does happen, they should apply to the IRS to have the penalty waived.  I have read that if you can show that there was a reasonable error and that you have since corrected that error, you may get the penalty waived. 

[tallguy]

Rolling the 401k's into an IRA would simplify things.  You would then only need to calculate one RMD amount instead of worrying about multiple ones....

[Deleted]

Jun 19, 2016 18:26:32 GMT -5 @patstab said:

Ok, I will remember that, we were talking about that. He has 2 401k's, one large, one small.

The  IRA's we aren't planning on taking the money either unless something dire happened.

But then it would come out of the investments so would have to move it to something else.

You mean you weren't planning on taking the money from the IRA until the next year? Or are they Roths?

[Deleted]

Jun 19, 2016 17:48:19 GMT -5 tallguy said:

If that does happen, they should apply to the IRS to have the penalty waived.  I have read that if you can show that there was a reasonable error and that you have since corrected that error, you may get the penalty waived. 

I'm not even retired so my knowledge is extremely limited; this is the article that I was referencing.  He didn't mention getting the penalty waived.

link

Let’s say you had five IRAs of different values. You could add up the total RMDs and withdraw the entire amount from just one of the IRAs — much like you asked. That works fine if all the money is in IRAs. But if one of those accounts is a 401(k), you must take from the 401(k) its pro rata portion.



Taking the 401(k) portion from one of the IRAs triggers the penalty. Even though you took the proper total amount from all the accounts, the IRS will say you didn’t take it from the proper place. Thus, a simple paperwork error costs you a 50% penalty on the amount you were supposed to take from the 401(k) — and that’s on top of the taxes.

Ric Edelman is the author.

[tallguy]

From pages 7 and 8 of the instructions to Form 5329:

Part IX—Additional Tax on Excess Accumulation in Qualified Retirement Plans (Including IRAs) You owe this tax if you do not receive the required minimum distribution from your qualified retirement plan, including an IRA or an eligible section 457 deferred compensation plan. The additional tax is 50% of the excess accumulation, which is the difference between the amount that was required to be distributed and the amount that was actually distributed. The tax is due for the tax year that includes the last day by which the minimum required distribution must be taken.

Waiver of tax. The IRS can waive part or all of this tax if you can show that any shortfall in the amount of distributions was due to reasonable error and you are taking reasonable steps to remedy the shortfall. If you believe you qualify for this relief, attach a statement of explanation and file Form 5329 as follows. 1. Complete lines 52 and 53 as instructed. 2. Enter “RC” and the amount you want waived in parentheses on the dotted line next to line 54. Subtract this amount from the total shortfall you figured without regard to the waiver, and enter the result on line 54. 3. Complete line 55 as instructed. You must pay any tax due that is reported on line 55. The IRS will review the information you provide and decide whether to grant your request for a waiver.

I am not a tax person so this is only my reading of it.  I would of course defer to anyone with greater knowledge on the subject.

In general, though, I would assume that taking the correct total amount (though taking it from only one account instead of apportioning it properly) would qualify as "reasonable error" in the eyes of the IRS, and that if you corrected it by taking the RMD from the 401k as well you may get the waiver.  Again though, I am not a tax person and am not certain of any of this.  Worth a shot though.

[tallguy]

Again, though, why not roll the 401k's into an IRA?  Not only would it simplify things in then having only one RMD amount to bother with, but you would also likely have better and more flexible investment options to choose from.  

[Deleted]

Jun 20, 2016 10:43:45 GMT -5 tallguy said:

Again, though, why not roll the 401k's into an IRA?  Not only would it simplify things in then having only one RMD amount to bother with, but you would also likely have better and more flexible investment options to choose from.  

And as Edelman also pointed out in his article, the ages for RMD coincide with the risk of decreased cognitive awareness.  Why make it more complicated than it has to be?

[TheOtherMe]

Jun 20, 2016 14:51:16 GMT -5 @bamafan1954 said:

Jun 20, 2016 10:43:45 GMT -5 tallguy said:

Again, though, why not roll the 401k's into an IRA?  Not only would it simplify things in then having only one RMD amount to bother with, but you would also likely have better and more flexible investment options to choose from.  

And as Edelman also pointed out in his article, the ages for RMD coincide with the risk of decreased cognitive awareness.  Why make it more complicated than it has to be?

Which is the reason I set up my dad's to come out automatically on December 1.  He's 92 and he worries about it.  Now it's on the bank.

[tallguy]

Are you aware that you can invest into just about anything in an IRA?  You don't have to roll it into or keep it in CD's just because you are currently doing so.  You can probably invest into the same funds and asset classes that your 401k's are in.  The 401k is limited to the funds offered by the plan.  An IRA is not.  You have literally thousands of options available.  

I've never done a rollover yet, but I would assume that if you have an investment adviser or someone who handles investments at your bank they could handle the rollover into the exact same assets that you currently hold if that is what you want.  It would just be held inside an IRA instead of being left in the employer's 401k plan.  You would likely be paying lower fees as well.  Something to look into....