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Two-tiered Trad. IRA RMD schedules... (???!!!)

CrashCrash
in Off-Topic
Morningstar:
"Seniors are required to begin taking distributions from traditional IRAs (as well as traditional 401(k)s, 403(b)s, and 457 plans) once they reach age 70 1/2. But don't just reach for a one-size-fits-all calculator to determine how much you need to take out. If your spouse is your beneficiary on one of these types of accounts and is also 10 or more years younger than you, you'll need to follow a separate (and more generous) RMD schedule than is the case for those with beneficiaries of a similar age. The goal of the separate calculation schedule is to ensure that the IRA owner doesn't deplete the account prematurely because the younger spouse/beneficiary could be around many years later.

Comments

  • msf
    edited January 2016
    More precisely, if your spouse is your only primary beneficiary (and there's a 10+ year age gap) ...

    Then there is another schedule used for inherited IRAs which is less generous than the usual schedule.
  • CrashCrash
    @msf Thank you. Yes, wifey is 100% primary. Dare I share the age gap? grin. I suppose I've mentioned it in passing, before now. But surely the more generous RMD schedule will in fact apply. Are you able to tell me what that schedule is? ...It must be a percentage of the assets, yes?
  • msf
    Exactly right - just a smaller percentage of IRA assets, since you and wife are expected to live longer than a couple where they're both your age.

    The tables are in Pub 590B, Appendix B.

    Most people use Table III (Uniform Lifetime). It just depends on your lifetime (doesn't matter about spouse, so long as spouse is not more than 10 years younger).

    You'll use Table II, where you look up your age and your spouse's (since the younger your spouse is, the longer one of you - namely her - will likely live).

    FWIW, if you inherit an IRA, you're on your own - the IRS doesn't care if you're married, it uses a single lifetime table, Table I. (The way you use the table for inherited IRAs is different than for "normal" IRAs. You just keep subtracting one year each year. For regular IRAs, you look up your expected lifetime each year.)


  • CrashCrash
    edited January 2016
    That's very, very helpful. I'm grateful. Except..... How the hell do you make sense of that table? Let's say I start taking RMDs at 70.5 years old. She'll be 51. My age vertically on the left? Hers horizontally? But i just don't get it. I see the numbers. What do they tell me?
  • catch22catch22
    @crash
    Hopefully recalling properly that you have an account at TR Price and that they surely have a "RMD IRA calculator" at the site. The first link below is for various calculators available through major investment vendors; and the second link is for Fidelity's calculator.
    Input your forward data and run the numbers using more than one of the calculators to discover if they all result in similar findings. Fidelity's calculator does ask about a sole beneficiary being your spouse and an age difference choice, if greater than 10 years as the first primary inputs for data. I will presume this is similar to all RMD IRA calculators available.

    https://www.google.com/?gws_rd=ssl#q=rmd+ira+calculator

    https://web.fidelity.com/mrd/application/MRDCalculator
  • msf
    Table II is actually just the "upper half" of a joint lifetime table; the older age (the IRA owner) is along the vertical axis, and the younger age (spouse) is along the horizontal axis.

    The number that you look up in the table tells you your (joint) expected life expectancy. You take your IRA balance at the end of the previous year (check your Form 5498), and divide by this life expectancy to get the RMD. The idea is that if you'll live 20 years, you take out 1/20th, then next year (if you make it to next year) you'll live about 19.1 years, so you take out 1/19.1, etc.

    What age do you use? The age you'll be at the end of this year. If you're turning 70.5 this year, that year end age might be 70 (e.g. if you were born 1/1/1946), or 71 (e.g. if you were born 12/31/1945). Let's say 71, and your spouse is turning 51 this year.

    T. Rowe Price has a pdf with just Table II to make it easier:
    http://individual.troweprice.com/staticFiles/Retail/Shared/PDFs/JointLifeExpectancyTable.pdf

    On p. 8 of that table, we have age 71 on the vertical axis, and age 51 on the horizontal. It says your joint expected lifetime is 34.2.

    If you had $100,000 in your IRA at the end of 2015, then your RMD would be $100K/34.2 = $2923.98.

    Fortunately, that's the same number I get from the RMD calculators (never take a quiz without looking for the answers in the back of the book:-))
  • CrashCrash
    Very grateful for all the information AND explanations! Ok. That's clearer. Thanks, again.
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