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There's a lot available about strategy here. You can find essays about the question in a million places. But it occurs to me: I've never seen anything that specifies HOW MUCH the RMD must be, once you begin to take them. Who can tell me/us? Thank you.
Who can tell you? The IRS - they're from the government and they're here to help. Well, actually their help is here: Pub 590b.
There are a few different factors - different beneficiaries on different IRAs, magnitude of age difference from spouse, inherited IRAs, etc. But for most people, just add up the value of the IRAs at the end of the previous year, use Table III and your age to get a divisor (life expectancy), and divide the total amount of your taxable IRAs by that expected life expectancy.
Again, this is a heuristic, and can give you the wrong answer in many cases. But for most people and cases, this is the right answer, and simpler. See this IRS example.
(Note: As the instructions in Ted's worksheet state, you must compute the RMD for each IRA separately. Also, it does not apply to inherited IRAs.)
I understand why they want you to compute each separately on the worksheet. However, as a "worksheet", I'm assuming it's for your own records and not submitted with the tax return.
So, for most (emphasize "most") people, is it really necessary to compute these separately in order to arrive at the correct RMD?
I'm not suggesting one disregard the instructions to compute these these separately. However, for most individuals, I can't see where it will make any practical difference - since the rules allow you to take the total RMD from one or any combination of Traditional IRAs you want to.
From hank: "I'm not suggesting one disregard the instructions to compute these these separately. However, for most individuals, I can't see where it will make any practical difference - since the rules allow you to take the total RMD from one or any combination of Traditional IRAs you want to."
.....That's more than likely a lot easier to understand than any IRS publication or worksheet. The bulk of my IRA stuff is with TRP. the smaller bit is with Mairs & Power. Yet smaller is the regular, taxable accounts: SFGIX, DLFNX. (Then there's wifey's 403b. Still miniscule.)
I thank you, Ted, and msf, for your offerings. It's late. I'll give those links my attention tomorrow.
Just to be clear, if you have to get life expectancy from different tables (Table II and Table III) for different IRAs, then you must calculate each RMD separately.
If you're using the same life expectancy (divisor) for all IRAs, then there's no need to compute each separately. That's because multiplication (and division) is distributive over addition. That is: (IRA1 + IRA2 + IRA3) / life expectancy = IRA1/life expectancy + IRA2 / life expectancy + IRA3 / life expectancy
As you wrote, once you have the correct RMD figure (however you arrived at that), you are allowed to pull that total amount out of any or all of your traditional IRAs combined.
@ msf - Thanks very much - Very Clear - @ Crash: Sounds like we're in similar boats. The bulk of my Traditional is at TRP. Smaller amount at Perm Portfolio (which I don't want to mess with). At 3 others, 100% has been converted to Roths.
Can't beat TRP for outstanding record keeping and service. I shift distributions initially into a non-retirement money fund there. Seems to me that were there any mix-up in taxes withheld, etc., it would be easier to resolve it than if the $$ had already been mailed out.
Our enlightened Michigan legislators (see Rono's comments in the "roads" thread) have forced custodians to impose mandatory withholding on all IRA withdrawals - including Roths. (The Roth withholding is normally received back as a tax refund). You can, however, complete and submit an "opt-out" form exempting you from that requirement. Making sure custodians receive, understand and follow your instructions is sometimes difficult.
A critical language portion of the 2012 revision of pension(s) taxation in Michigan:
Entities, over whom Michigan has jurisdiction, disbursing pension or annuity payments are required to collect withholding on those payments that are expected to be included in taxable income unless you choose to opt out by submitting this form (See instructions for line 1). Entities over which Michigan does not have jurisdiction are not required to withhold Michigan income tax from your pension or annuity payment(s).
Agreed that most pensions in Michigan are likely paid from Michigan entities; in large part, due to the large pension base from the auto industry.
I'm under the assumption (haven't reached 70yo) Vanguard is suppose to give you a figure to withdraw based on your traditional IRA with THEM, of course I could easily figure my own withdraw, but to have their verification would be nice... Anyone got there (70yo) with Vanguard yet?...
Hi Catch - T. Rowe Price considers the Michigan mandatory withholding on "pensions" applicable to IRAs (Roth and Traditional) and enforces it. I know that from personal experience. In other words, In Price's view, the IRA itself meets Michigan's definition of "pension."
It is actually easier to decline federal withholding on a distribution there than to avoid the Michigan hit. In fact, I've found that the opt-out form (mentioned in your blurb) needs to be specific per individual fund. Exchange the $$ into a different (new) fund, and you need to send in a new opt-out form for the fund added.
Now, it may be that their legal department is more cautious than some others in interpreting Michigan's law. I can't speak to that as, so far, all distributions have come from Price.
It's not T. Rowe Price considering IRAs to be pensions; that's Michigan law:
Under Michigan law, qualifying pension and retirement benefits include most payments that are reported on a 1099-R for federal purposes. This includes defined benefit pensions, IRA distributions, and most payments from defined contribution plans.
We are financial planners and are working with a custodian to withdraw money from a Roth IRA for one of our clients. Is a distribution from a Roth IRA taxable and subject to the 4.25% withholding?
Law (MCL 206.703) requires pension withholding on any IRA distributions that will be subject to Michigan tax at the end of the year on the beneficiary’s Michigan income tax return. In general, distributions from Roth IRAs are exempt from both Michigan and federal income taxes, and no pension withholding would be required.
However, if part of the distribution is taxable, then Michigan pension withholding would be required on the taxable portion of the distribution. A portion of the distribution from a Roth IRA may be taxable when a recipient receives a nonqualified distribution. Nonqualified distributions from Roth IRAs are determined by reference the Internal Revenue Code.
Price's position may be that some of the Roth might be taxable, but it knows better at least if its records show that the account has been open for more than five years and all the money has come from contributions (not transfers/rollovers/conversions).
Good information provided here. Computing the RMD correctly is extremely important because if you withdraw less than the minimum, the tax penalty is 50% of the underpayment. This seems weird given that the penalty for making an early w/d from a tax-deferred account is 10%. My retirement account manager screwed up for 2013 and 2014 and paid me two lump sums that were more than 12k short for the two years. I have since withdrawn the shortage and corrected the RMD. When I filed my 1040 this year I had to explain to the IRS what happened (there is a form for this) and now I hope I don't get audited. My lawyer says my situation is common and that the IRS has been lenient in the past, especially if there was no intent to avoid taxes. He also said that deficit hawks in DC are trying to get the IRS to be less forgiving.
Thanks msf - I've been doing regular transfers to TRP from various custodians for a number of years - so do fit the exception you noted. Also, the initial IRA was a workplace "Rollover IRA" which they later converted to a "Traditional IRA" at my request. And, all Roths are of the "converted" variety. Folks in our state might want to check with their custodians in advance about whether Michigan's mandatory withholding applies in their case.
Someone once described the camel as a horse designed by committee. Guess you could say the same about the laws governing these tax-sheltered investments.
A question for some of the more enlightened here already in RMD mode. If you plan on taking your first RMD in December of the year you turn 70, I assume you have to adjust your quarterly payments for this event? Meaning you will have some rough idea of what it will be earlier in the year and make your quarterly payments based on that?
I presume this method in some form may also apply to other custodial IRA accounts.
At Fidelity, we have linkage setup between our accounts and our credit union to allow us to move money electronically in either direction.
If I/we request to withdraw money (not RMD type) from an IRA to move to our credit union acct.; one of the steps with a dropdown menu is the amount of withholding to apply to the withdrawal, both federal and state. One may select "none", a percentage of your own choice and with the state portion an additional choice of, the current tax rate for Michigan.
@Crash Things have been pretty much 'splained in full.............and that your TR Price site will have calcualtors to help your determine your RMD needs. From all I have studied, your RMD for the first year will be about 3.85% of your total IRA value. This number may increase slightly for the following years
@Junkster - while I'm not in RMD mode, I think I can address your question. Especially since it is broader than RMDs - what happens if you have a jump in income in your last quarter. (This would be of interest not only to retirees, but to self employed people or anyone else making estimated payments.)
If you're meeting the safe harbor requirement on payments (100% or 110% of last year's taxes, depending on how much income you made last year), then you're safe. Of course you'll have to pay extra at tax time, but no penalty.
If you've been paying enough on each estimate as you went along (i.e. based on the income earned YTD), then you can file a special form, 2210 (Schedule AI), that gets you out of the penalty. But you will have to increase that fourth quarter estimate to cover the taxes due to the increased income in that quarter.
I dislike using this form because it requires one to keep pretty good records - when you got what income - what dividends you received each tax quarter, cap gains, interest, etc. But it does provide a way out if you've been paying the tax you owe as you go along (despite the income being uneven).
One other item - the first RMD comes when you're 70.5, so if you were born in Sept. 1945, you don't have an RMD for 2015. You're 70.5 in 2016. You can take that first RMD any time up to April 1, 2017.
Catch - That's interesting. Your experience at Fidelity is different from mine at Price. Yes, I do get a drop-down menu asking how much, if any, I want taken out for federal taxes. And, at the federal level they give me the right to decline. But, there's no drop-down for the state tax. Instead, a message pops-up stating that "Michigan is a mandatory withholding state" (or something to that effect) along with a message stating that a certain % will be withheld.
I've gone over this with them on the phone a number of times and it's been a source of some frustration - with the state tax being taken out on more than one occasion without my consent and against my will. Now, to be safe, I mail them a new opt-out form along with a letter listing all the funds to which it applies every January. If, by chance, I move into a new fund during the year, I mail them a new opt-out form for that fund.
You noted: "Now, to be safe, I mail them a new opt-out form along with a letter listing all the funds to which it applies every January. If, by chance, I move into a new fund during the year, I mail them a new opt-out form for that fund."
>>>I don't understand what you wrote with this. Why would you have to "opt" anything on an annual basis? Note: everything I reference here regards a traditional IRA account.
Regarding Fidelity, if money was transferred from my IRA to a bank/credit union account, the money would be in the money market (cash) portion of the FIDO IRA account. I don't think that Fidelity would let me transfer money from an equity or bond fund electronically to the credit union account (meaning there would be a sell of the holding and then the money would be moved to the cash position). If I know I want to transfer money, I will sell that dollar amount from whatever mutual fund and the money will go to the cash position, and now available for electronic transfer.
As to Fidelity's internal function to transfer money from an IRA account to a bank/cu account: ---enter $ amount ---FED....auto set to 10% tax rate, but you may select any % or NO tax withheld ---STATE...3 options, NO tax withheld, the rate for your state or some other %
Just a few added notes regarding our previous chat..........
At least for RMDs, Fidelity does allow exactly what you described: "there would be a sell of the holding and then the money would be moved the cash position".
5. Funding Your Distributions Distributions will be withdrawn from the account(s) and, if applicable, the Eligible Positions, you identify below. Eligible Positions include your core position (for brokerage IRAs), all Fidelity mutual funds, and those non-Fidelity mutual funds available through Fidelity FundsNetwork where the mutual fund company has agreed to make the fund available for automatic distributions. You can specify that the distributions come from any or all of the accounts identified in Section 3
Aside from the RMD calculation, why would these distribution arrangements (tax collection) be any different than tax deferred IRA distributions made at 59 1/2?
@bee I don't think anything would be different. I did the test run with Fido, as if I wanted to pull money from my IRA to xfer to a c.u. acct. and the choices were as noted in the above reply to hank.
Well, I guess some good came of looking at this a little early. I thought I could withdraw from one of several accounts the amount owed for all the accounts. From the IRS, I can't because there is an IRA, 2 403(b)s and the TSP(401(k)??):
Can an account owner just take a RMD from one account instead of separately from each account?
An IRA owner must calculate the RMD separately for each IRA that he or she owns, but can withdraw the total amount from one or more of the IRAs. Similarly, a 403(b) contract owner must calculate the RMD separately for each 403(b) contract that he or she owns, but can take the total amount from one or more of the 403(b) contracts.
However, RMDs required from other types of retirement plans, such as 401(k) and 457(b) plans have to be taken separately from each of those plan accounts.
There's a special case, which in turn has a special, special case, not mentioned in the FAQ above:
If you have an inherited IRA, you must take RMDs from that IRA (the RMD calculation is also a little different, but that's not my point here). The RMDs for the inherited IRA must come from the inherited IRA, and not from your own IRAs.
(Note: if you are the spouse of the deceased, you have the option of relabeling the inherited IRA as your own, but then it is no longer an inherited IRA; it's just another one of your personal IRAs.)
If you have multiple IRAs inherited from the same person, you're allowed to take the inherited RMDs from any or all of those inherited IRAs (just as you would for your own IRAs).
The special, special case is if you have inherited IRAs from two different people. These cannot be combined. The RMD you compute for the IRAs inherited from person A must be taken from the IRAs inherited from person A. Likewise, the person B RMDs must be taken from the person B IRAs.
I'm pretty sure that's the rule (and the subrule), but this is obscure enough that I'm having problems finding a cite now.
Comments
Regards,
Ted
http://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf
There are a few different factors - different beneficiaries on different IRAs, magnitude of age difference from spouse, inherited IRAs, etc. But for most people, just add up the value of the IRAs at the end of the previous year, use Table III and your age to get a divisor (life expectancy), and divide the total amount of your taxable IRAs by that expected life expectancy.
Again, this is a heuristic, and can give you the wrong answer in many cases. But for most people and cases, this is the right answer, and simpler. See this IRS example.
(Note: As the instructions in Ted's worksheet state, you must compute the RMD for each IRA separately. Also, it does not apply to inherited IRAs.)
So, for most (emphasize "most") people, is it really necessary to compute these separately in order to arrive at the correct RMD?
I'm not suggesting one disregard the instructions to compute these these separately. However, for most individuals, I can't see where it will make any practical difference - since the rules allow you to take the total RMD from one or any combination of Traditional IRAs you want to.
.....That's more than likely a lot easier to understand than any IRS publication or worksheet. The bulk of my IRA stuff is with TRP. the smaller bit is with Mairs & Power. Yet smaller is the regular, taxable accounts: SFGIX, DLFNX.
(Then there's wifey's 403b. Still miniscule.)
I thank you, Ted, and msf, for your offerings. It's late. I'll give those links my attention tomorrow.
If you're using the same life expectancy (divisor) for all IRAs, then there's no need to compute each separately. That's because multiplication (and division) is distributive over addition. That is:
(IRA1 + IRA2 + IRA3) / life expectancy =
IRA1/life expectancy + IRA2 / life expectancy + IRA3 / life expectancy
As you wrote, once you have the correct RMD figure (however you arrived at that), you are allowed to pull that total amount out of any or all of your traditional IRAs combined.
-
@ Crash: Sounds like we're in similar boats. The bulk of my Traditional is at TRP. Smaller amount at Perm Portfolio (which I don't want to mess with). At 3 others, 100% has been converted to Roths.
Can't beat TRP for outstanding record keeping and service. I shift distributions initially into a non-retirement money fund there. Seems to me that were there any mix-up in taxes withheld, etc., it would be easier to resolve it than if the $$ had already been mailed out.
Our enlightened Michigan legislators (see Rono's comments in the "roads" thread) have forced custodians to impose mandatory withholding on all IRA withdrawals - including Roths. (The Roth withholding is normally received back as a tax refund). You can, however, complete and submit an "opt-out" form exempting you from that requirement. Making sure custodians receive, understand and follow your instructions is sometimes difficult.
A critical language portion of the 2012 revision of pension(s) taxation in Michigan:
Entities, over whom Michigan has jurisdiction, disbursing pension or
annuity payments are required to collect withholding on those payments that are expected to be included in taxable income unless you
choose to opt out by submitting this form (See instructions for line 1). Entities over which Michigan does not have jurisdiction are not
required to withhold Michigan income tax from your pension or annuity payment(s).
Agreed that most pensions in Michigan are likely paid from Michigan entities; in large part, due to the large pension base from the auto industry.
Anyone got there (70yo) with Vanguard yet?...
It is actually easier to decline federal withholding on a distribution there than to avoid the Michigan hit. In fact, I've found that the opt-out form (mentioned in your blurb) needs to be specific per individual fund. Exchange the $$ into a different (new) fund, and you need to send in a new opt-out form for the fund added.
Now, it may be that their legal department is more cautious than some others in interpreting Michigan's law. I can't speak to that as, so far, all distributions have come from Price.
Quotes are from michigan.gov.
Someone once described the camel as a horse designed by committee. Guess you could say the same about the laws governing these tax-sheltered investments.
I presume this method in some form may also apply to other custodial IRA accounts.
At Fidelity, we have linkage setup between our accounts and our credit union to allow us to move money electronically in either direction.
If I/we request to withdraw money (not RMD type) from an IRA to move to our credit union acct.; one of the steps with a dropdown menu is the amount of withholding to apply to the withdrawal, both federal and state. One may select "none", a percentage of your own choice and with the state portion an additional choice of, the current tax rate for Michigan.
Just some FYI regarding this thread.
Things have been pretty much 'splained in full.............and that your TR Price site will have calcualtors to help your determine your RMD needs. From all I have studied, your RMD for the first year will be about 3.85% of your total IRA value. This number may increase slightly for the following years
If you're meeting the safe harbor requirement on payments (100% or 110% of last year's taxes, depending on how much income you made last year), then you're safe. Of course you'll have to pay extra at tax time, but no penalty.
If you've been paying enough on each estimate as you went along (i.e. based on the income earned YTD), then you can file a special form, 2210 (Schedule AI), that gets you out of the penalty. But you will have to increase that fourth quarter estimate to cover the taxes due to the increased income in that quarter.
I dislike using this form because it requires one to keep pretty good records - when you got what income - what dividends you received each tax quarter, cap gains, interest, etc. But it does provide a way out if you've been paying the tax you owe as you go along (despite the income being uneven).
One other item - the first RMD comes when you're 70.5, so if you were born in Sept. 1945, you don't have an RMD for 2015. You're 70.5 in 2016. You can take that first RMD any time up to April 1, 2017.
I've gone over this with them on the phone a number of times and it's been a source of some frustration - with the state tax being taken out on more than one occasion without my consent and against my will. Now, to be safe, I mail them a new opt-out form along with a letter listing all the funds to which it applies every January. If, by chance, I move into a new fund during the year, I mail them a new opt-out form for that fund.
Geez - I like Fidelity's approach better.
4-steps-taking-roth-conversion-after-age-70-1/2
You noted: "Now, to be safe, I mail them a new opt-out form along with a letter listing all the funds to which it applies every January. If, by chance, I move into a new fund during the year, I mail them a new opt-out form for that fund."
>>>I don't understand what you wrote with this. Why would you have to "opt" anything on an annual basis? Note: everything I reference here regards a traditional IRA account.
Regarding Fidelity, if money was transferred from my IRA to a bank/credit union account, the money would be in the money market (cash) portion of the FIDO IRA account. I don't think that Fidelity would let me transfer money from an equity or bond fund electronically to the credit union account (meaning there would be a sell of the holding and then the money would be moved to the cash position). If I know I want to transfer money, I will sell that dollar amount from whatever mutual fund and the money will go to the cash position, and now available for electronic transfer.
As to Fidelity's internal function to transfer money from an IRA account to a bank/cu account:
---enter $ amount
---FED....auto set to 10% tax rate, but you may select any % or NO tax withheld
---STATE...3 options, NO tax withheld, the rate for your state or some other %
Just a few added notes regarding our previous chat..........
Take care,
Catch
From Fidelity's Automated Withdrawals - MRD/Life Expectancy Form:
I don't think anything would be different. I did the test run with Fido, as if I wanted to pull money from my IRA to xfer to a c.u. acct. and the choices were as noted in the above reply to hank.
If you have an inherited IRA, you must take RMDs from that IRA (the RMD calculation is also a little different, but that's not my point here). The RMDs for the inherited IRA must come from the inherited IRA, and not from your own IRAs.
(Note: if you are the spouse of the deceased, you have the option of relabeling the inherited IRA as your own, but then it is no longer an inherited IRA; it's just another one of your personal IRAs.)
If you have multiple IRAs inherited from the same person, you're allowed to take the inherited RMDs from any or all of those inherited IRAs (just as you would for your own IRAs).
The special, special case is if you have inherited IRAs from two different people. These cannot be combined. The RMD you compute for the IRAs inherited from person A must be taken from the IRAs inherited from person A. Likewise, the person B RMDs must be taken from the person B IRAs.
I'm pretty sure that's the rule (and the subrule), but this is obscure enough that I'm having problems finding a cite now.