Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Maybe it was a compromise. You know - the owls wanted 60 and 70 but the eagles wanted much older. They consulted the statisticians and actuaries who determined that the optimal time to claw back those taxes was in the half years of 59 and 70.
Strange and inexplicable numbers seem to popup without apparent rhyme or reason more frequently than we commonly recognize.
Often there is a mystical or unknown explanation that makes little if any sense. I’m not familiar with any explanation for the increments cited by the original post.
But I am familiar with a shocking story associated with Bill Hewlett and Dave Packard when selling their very first product. I say shocking because I think of the HP founders as being at the apex of rational, logical inventors and entrepreneurs. This story casts serious doubts about that attribute, at least in this instance.
Hewlett had designed and assembled a product that had some likely commercial value. The HP founders decided to sell it. But at what price? Competitors had a similar electronic product at a much higher price-tag, so they decided to gain market share with a much lower entry price. They priced the device at a surprising $54.40. Now that’s an unusual number! Why that oddball figure?
In fact, at that lower price, they actually lost money on each item sold. Why did they do it?
Well, being from the Northwestern section of our Great Country, the HP teammates were especially familiar with the old “fifty-four forty or fight” saying. I’m sure you all recall that saying from your early school years. It started with President Polk’s dream of expansion to achieve our “manifest destiny”. He called for an expansion that included the complete Oregon territory. The northern boundary of Oregon was at a latitude of 54 degrees, 40 minutes, hence the popular slogan was born.
Why the HP leadership selected that unrelated number to determine their product pricing remains a mystery. That particular decision is not representative of their overall business acumen. Profit was always near the top of their corporate goals.
I like good stories. The HP story is definitely in that category. I hope you enjoy it as much as I do.
I was hoping for something more lunar like Congress had recessed to Half Moon Bay or better yet, to have spent time hiking Half Dome and just couldn't get the experience out of their heads when they returned to Congress.
Or, maybe more traditional, like a complete game in baseball is as msf pointed out ...the bottom half of the fifth (The game is also considered official if the home team scores to take the lead in the bottom of the fifth inning) so the bottom half of 59 years of age would be a logical retirement age.
KEOGH plans - "Keep Everything Out of Government Hands"
Baseball games are "regulation" or "official" after 4 1/2 innings (i.e. in the middle of the fifth) if the home team is leading at that point, otherwise 5 innings (or less if the home team takes the lead in the bottom of the fifth). While a five inning game is automatically "official" (i.e. goes into the record books), I would not consider it "complete" until the end of the game were played (typically 8 1/2 - 9 innings, more in case of a tie, fewer in case of rain).
This confusion in counting is why most people think the 21st century began in 2000, while it really began in 2001. (We start counting in year 1, which is why the 1st century is 0001 - 0100, the second century is 0101 - 0200, the 20th is 1901- 2000, and the current 21st century is 2001 - now.)
From page 11: "But what happens if you do not start taking your minimum required withdrawals in a timely fashion? Such procrastination can result in a serious penalty. Your failure to take out the minimum required distribution in a timely fashion brings with it a penalty equal to 50% of the required distribution that you did not take."
Question for msf or others: How does the government know whether or not you took your RMD in the required amount? This would seem very hard for them to ascertain - especially for someone spread out among a half-dozen different IRAs at different fiduciaries. I understand that it's the taxpayer's responsibility to combine all these and take out the correct amount of RMD (which may all come from a single IRA). But ... how do they enforce that? Yes - they could routinely collect/monitor the data via SS numbers. But, do they?
I don't plan to run the risk. Just wondering how thoroughly the law is enforced.
See Form 5498 - all IRA custodians/trustees are supposed to file this with the IRS and give you a copy. It gives the amount you had in the account at the end of last year, whether you are required to take an RMD, and if so, how much.
To the best of my knowledge we've never received 5498 from any of our 5 IRA fiduciaries. Since 4 of those are 100% Roth, it's not a terribly complex problem for me. I do receive 1099-R from each every year showing distributions - if any. Maybe the reason for no 5498 is that 2016 will be the first year I'm required to take an RMD?
Not much of an issue as we already take an amount higher than the required RMD from the sole Traditional IRA every year. And it appears one doesn't need 5498 in order to file a return. Could check with Price, where our only Traditional IRA exists, and see why we haven't gotten 5498s from them. Early morning ramblings - any thoughts appreciated.
- From Form 5498: "The information on Form 5498 is submitted to the Internal Revenue Service by the trustee or issuer of your individual retirement arrangement (IRA) to report contributions, including any catch-up contributions, required minimum distributions (RMDs), and the fair market value (FMV) of the account. For information about IRAs, see Pubs. 590 and 560."
- From Another Source: https://www.taxact.com/support/791/form-5498-ira-contribution-information/ : "Form 5498 reports the Fair Market Value (FMV) of your IRA account as of year-end. This information should be entered on Form 8606, Line 6 ONLY IF you took distributions from a Traditional, SEP, or SIMPLE IRA during the current tax year AND you made nondeductible contributions to a traditional IRA in the current tax year or an earlier year."
@hank What you noted is correct regarding the Form 5498. We have received this form for a number of years related to Traditional IRA holdings. You too, should have received this form for each Traditional IRA. Receipt/generation of the form has nothing to do with a RMD function, but a check box on the form does indicate whether or not a RMD did happen in a reporting tax year and what the reporting company indicates as the minimum amount should be. Regards, Catch
To the best of my knowledge we've never received 5498 from any of our 5 IRA fiduciaries. [...] I do receive 1099-R from each every year showing distributions - if any. Maybe the reason for no 5498 is that 2016 will be the first year I'm required to take an RMD?
Not much of an issue as we already take an amount higher than the required RMD from the sole Traditional IRA every year. And it appears one doesn't need 5498 in order to file a return. Could check with Price, where our only Traditional IRA exists, and see why we haven't gotten 5498s from them. Early morning ramblings - any thoughts appreciated
When I posted I thought about adding a comment that this is one of those rules (custodian filing) that seems to be honored more in the breach.
While your theory about not getting 5498s until RMDs are required sounds reasonable, the fact that you're subject to an RMD this year seems to disprove that. Your 2015 5498 (which is required to be issued by May 2016) would have shown your RMD for 2016, based on your 2015 balance.
I've checked my files - T. Rowe Price does not seem to send 5498s (at least for us "young'uns") unless something happens, like a Roth conversion recharacterization. On the other hand, Fidelity generates them like clockwork.
What matters in computing the RMD is the adjusted year end balance. For example, if you did a Roth conversion in 2015 and recharacterized in March, you're supposed to include not only the balance of the traditional on Dec 31st, but the recharacterized amount.
A more common adjustment may be for a contribution made between January 1 and April 15th. If this was for the previous year, then it is added to the IRA's FMV in computing RMDs. Such adjustments are why it's safer to use the 5498. They're also why 5498s may not be generated until the end of May.
msf - Thanks. I'll bookmark this thread. If no 5498 before next tax filing, I'll check with fiduciaries.
Added - It looks like converting as many accounts to Roth during the earlier years may also alleviate some of the headaches involved with the RMD requirement.
I see this thread has morphed into a RMD discussion.
Both my wife and I have been exposed to this government requirement for a long time. Our portfolio has many moving parts. The RMD documentation from the various supporting agencies has always been timely and on a few occasions were followed up with phone calls. No problems.
In the past, even the government recognized potential problems after a down marketplace. You likely recall that the RMD was suspended for 2009 when President Bush signed a special law in late 2008.
Here is a Link that summarizes that singular event:
Even the government can adjust for special circumstances.
My wife and I work hard to fully comply with the RMD. Those 50% penalties help that compliance, but still many folks fail to do so. I have no idea of the capture rate for that failure.
Comments
The original idea was 59 1/3 and 9.25 hours, but they rounded up. Remember, it's a government idea and they're seldom rational or make sense.
I do bet it had something to do with taxes.
Strange and inexplicable numbers seem to popup without apparent rhyme or reason more frequently than we commonly recognize.
Often there is a mystical or unknown explanation that makes little if any sense. I’m not familiar with any explanation for the increments cited by the original post.
But I am familiar with a shocking story associated with Bill Hewlett and Dave Packard when selling their very first product. I say shocking because I think of the HP founders as being at the apex of rational, logical inventors and entrepreneurs. This story casts serious doubts about that attribute, at least in this instance.
Hewlett had designed and assembled a product that had some likely commercial value. The HP founders decided to sell it. But at what price? Competitors had a similar electronic product at a much higher price-tag, so they decided to gain market share with a much lower entry price. They priced the device at a surprising $54.40. Now that’s an unusual number! Why that oddball figure?
In fact, at that lower price, they actually lost money on each item sold. Why did they do it?
Well, being from the Northwestern section of our Great Country, the HP teammates were especially familiar with the old “fifty-four forty or fight” saying. I’m sure you all recall that saying from your early school years. It started with President Polk’s dream of expansion to achieve our “manifest destiny”. He called for an expansion that included the complete Oregon territory. The northern boundary of Oregon was at a latitude of 54 degrees, 40 minutes, hence the popular slogan was born.
Why the HP leadership selected that unrelated number to determine their product pricing remains a mystery. That particular decision is not representative of their overall business acumen. Profit was always near the top of their corporate goals.
I like good stories. The HP story is definitely in that category. I hope you enjoy it as much as I do.
Best Wishes.
https://www.pearsonhighered.com/samplechapter/0132333848.pdf
I was hoping for something more lunar like Congress had recessed to Half Moon Bay or better yet, to have spent time hiking Half Dome and just couldn't get the experience out of their heads when they returned to Congress.
Or, maybe more traditional, like a complete game in baseball is as msf pointed out ...the bottom half of the fifth (The game is also considered official if the home team scores to take the lead in the bottom of the fifth inning) so the bottom half of 59 years of age would be a logical retirement age.
Thanks Tony, that was a good find.
FWIW, your reference appears to be chapter three from The Truth About Protecting Your IRAs and 401(k)s, by Steve Weisman.
http://www.amazon.com/dp/0132333848/ref=olp_product_details?_encoding=UTF8&me=
(If you "look inside" and search for Keogh, you'll find this chapter.)
KEOGH plans - "Keep Everything Out of Government Hands"
Baseball games are "regulation" or "official" after 4 1/2 innings (i.e. in the middle of the fifth) if the home team is leading at that point, otherwise 5 innings (or less if the home team takes the lead in the bottom of the fifth). While a five inning game is automatically "official" (i.e. goes into the record books), I would not consider it "complete" until the end of the game were played (typically 8 1/2 - 9 innings, more in case of a tie, fewer in case of rain).
This confusion in counting is why most people think the 21st century began in 2000, while it really began in 2001. (We start counting in year 1, which is why the 1st century is 0001 - 0100, the second century is 0101 - 0200, the 20th is 1901- 2000, and the current 21st century is 2001 - now.)
Thanks -- I learn something new every day!
From page 11: "But what happens if you do not start taking your minimum required withdrawals in a timely fashion? Such procrastination can result in a serious penalty. Your failure to take out the minimum required distribution in a timely fashion brings with it a penalty equal to 50% of the required distribution that you did not take."
Question for msf or others: How does the government know whether or not you took your RMD in the required amount? This would seem very hard for them to ascertain - especially for someone spread out among a half-dozen different IRAs at different fiduciaries. I understand that it's the taxpayer's responsibility to combine all these and take out the correct amount of RMD (which may all come from a single IRA). But ... how do they enforce that? Yes - they could routinely collect/monitor the data via SS numbers. But, do they?
I don't plan to run the risk. Just wondering how thoroughly the law is enforced.
To the best of my knowledge we've never received 5498 from any of our 5 IRA fiduciaries. Since 4 of those are 100% Roth, it's not a terribly complex problem for me. I do receive 1099-R from each every year showing distributions - if any. Maybe the reason for no 5498 is that 2016 will be the first year I'm required to take an RMD?
Not much of an issue as we already take an amount higher than the required RMD from the sole Traditional IRA every year. And it appears one doesn't need 5498 in order to file a return. Could check with Price, where our only Traditional IRA exists, and see why we haven't gotten 5498s from them. Early morning ramblings - any thoughts appreciated.
- Form 5498 https://www.irs.gov/pub/irs-prior/f5498--2015.pdf
- From Form 5498: "The information on Form 5498 is submitted to the Internal Revenue Service by the trustee or issuer of your individual retirement arrangement (IRA) to report contributions, including any catch-up contributions, required minimum distributions (RMDs), and the fair market value (FMV) of the account. For information about IRAs, see Pubs. 590 and 560."
- From Another Source: https://www.taxact.com/support/791/form-5498-ira-contribution-information/ : "Form 5498 reports the Fair Market Value (FMV) of your IRA account as of year-end. This information should be entered on Form 8606, Line 6 ONLY IF you took distributions from a Traditional, SEP, or SIMPLE IRA during the current tax year AND you made nondeductible contributions to a traditional IRA in the current tax year or an earlier year."
What you noted is correct regarding the Form 5498. We have received this form for a number of years related to Traditional IRA holdings. You too, should have received this form for each Traditional IRA. Receipt/generation of the form has nothing to do with a RMD function, but a check box on the form does indicate whether or not a RMD did happen in a reporting tax year and what the reporting company indicates as the minimum amount should be.
Regards,
Catch
While your theory about not getting 5498s until RMDs are required sounds reasonable, the fact that you're subject to an RMD this year seems to disprove that. Your 2015 5498 (which is required to be issued by May 2016) would have shown your RMD for 2016, based on your 2015 balance.
I've checked my files - T. Rowe Price does not seem to send 5498s (at least for us "young'uns") unless something happens, like a Roth conversion recharacterization. On the other hand, Fidelity generates them like clockwork.
What matters in computing the RMD is the adjusted year end balance. For example, if you did a Roth conversion in 2015 and recharacterized in March, you're supposed to include not only the balance of the traditional on Dec 31st, but the recharacterized amount.
A more common adjustment may be for a contribution made between January 1 and April 15th. If this was for the previous year, then it is added to the IRA's FMV in computing RMDs. Such adjustments are why it's safer to use the 5498. They're also why 5498s may not be generated until the end of May.
According to Ed Slott et al., your year end statement can serve as a substitute 5498 if it is marked "“This information is being furnished to the Internal Revenue Service”.
https://www.irahelp.com/slottreport/ira-annual-fair-market-value-summary
If no 5498 before next tax filing, I'll check with fiduciaries.
Added - It looks like converting as many accounts to Roth during the earlier years may also alleviate some of the headaches involved with the RMD requirement.
I see this thread has morphed into a RMD discussion.
Both my wife and I have been exposed to this government requirement for a long time. Our portfolio has many moving parts. The RMD documentation from the various supporting agencies has always been timely and on a few occasions were followed up with phone calls. No problems.
In the past, even the government recognized potential problems after a down marketplace. You likely recall that the RMD was suspended for 2009 when President Bush signed a special law in late 2008.
Here is a Link that summarizes that singular event:
http://www.mondaq.com/unitedstates/x/72080/inheritance+tax/Required+Minimum+Distribution+Rules+Suspended+For+2009+For+IRAS+And+Other+Defined+Contribution+Plans
Even the government can adjust for special circumstances.
My wife and I work hard to fully comply with the RMD. Those 50% penalties help that compliance, but still many folks fail to do so. I have no idea of the capture rate for that failure.
Best Wishes.