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    Required Minimum withdrawals IRSa

    Now that I am getting up there in age (64) I am realizing that pretty soon I will need to do mandatory withdrawals from my regular IRA. The rule for when you have to make the withdrawal goes like this: "Your first mandatory withdrawal typically must be taken by April 1 after the year you've turned 70. Following that, you'll need to take them by Dec. 31 of each year." Kind of like doublespeak. To figure out mine I had to pull out extra fingers. My birthday is October 31 so I turn 70 1/2 April 30. Am I thinking this through correctly? The April 1 mandatory w/d for me won't be until I am actually almost 71 1/2 or am I missing something? I guess I am not sure if they are taking calendar years or actual age. Does anyone understand this?
    Gailete
    http://www.MoonwishesSewingandCrafts.com

    #2
    You are correct. One thing to be careful of, though. If you wait until the year you're turning 71-1/2 to take that first distribution, you still need to take that year's distribution by 12/31, meaning you would be taking 2 distributions in the same year. Depending on your income, that could impact taxes. Just be sure to run the numbers before going that route.
    Steve

    * Despite the high cost of living, it remains very popular.
    * Why should I pay for my daughter's education when she already knows everything?
    * There are no shortcuts to anywhere worth going.

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      #3
      Agreed, it sounds like you'll effectively need to take 2 RMDs the first year. My plan: Move everything to Roth accounts before I ever hit RMD age, that way I never have to deal with that madness. lol
      "Praestantia per minutus" ... "Acta non verba"

      Comment


        #4
        The reason the "double-speak" language of "April of the year AFTER you turn 70.5" is in there is an "Oops factor." It's really a safeguard for people who FORGET to take their first distribution in the year that they turn 70.5, and that's why you end up taking two RMDs (and possibly blowing up your tax bill, since you may push yourself into a higher bracket with the extra income) in that year if you wait until the year AFTER you turn 70.5. To avoid that, just take the distribution in the year you TURN 70.5. Then you won't have two distributions in one year. Of course, it also depends what your income would be in those couple of years, so of course run the numbers. Also keep in mind that the SECURE Act has passed the House and does have Bipartisan support and the President has indicated he would sign it. That would defer the Required distribution until age 72.

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          #5
          Although be careful about the change in age for the first withdrawal. Although it means your money can grow for a couple more years, it also means your RMD will be larger once you start so that could have tax implications if it knocks you into another bracket.
          Steve

          * Despite the high cost of living, it remains very popular.
          * Why should I pay for my daughter's education when she already knows everything?
          * There are no shortcuts to anywhere worth going.

          Comment


            #6
            Another thing to keep in mind is that you are required to withdraw the money; you are not required to spend it. Depending on your overall financial situation, it make make sense to begin taking withdrawals earlier and just parking the proceeds in a taxable account. One scenario I can think of where you might want to do this is if your RMDs will be making your SS benefits taxable. Taking withdrawals before you are required reduces your balance and thus your RMDs. (Of course, the earlier withdrawals may not help at all, depends on the size of your IRA).

            Just another option to consider.

            Comment


              #7
              Originally posted by Petunia 100 View Post
              Another thing to keep in mind is that you are required to withdraw the money; you are not required to spend it. Depending on your overall financial situation, it make make sense to begin taking withdrawals earlier and just parking the proceeds in a taxable account. One scenario I can think of where you might want to do this is if your RMDs will be making your SS benefits taxable. Taking withdrawals before you are required reduces your balance and thus your RMDs. (Of course, the earlier withdrawals may not help at all, depends on the size of your IRA).

              Just another option to consider.
              this is something i've thought about. How to handle a 401k when we retire. It's a delicate balance. Because you can't really save as much in roth ira unless you keep doing rollovers and it doesn't make sense in the higher brackets.
              LivingAlmostLarge Blog

              Comment


                #8
                I'll just throw this one out there, too. You can do conversions to Roth prior to required minimum distributions. Money converted to Roth does not have RMDs and assuming it is qualified (meaning you've had the Roth account for at least 5 years) and since you are over 59.5 you would not pay any further taxes on your Roth distributions.

                If you did conversions to Roth, you would have to be mindful of not bumping yourself up into another tax bracket. Also, not increasing the amount that your Social Security is taxed (that is a minefield--but if your RMDs are high enough they can have the same result). And, then, there is Medicare's income-related monthly adjustment amount (IRMAA) that you could accidentally trigger if you converted too much in one year.

                Comment


                  #9
                  I have run the numbers for converting our 401k to Roth. It makes a lot of sense for us to convert as much of our 401k as possible from age 55 to 69. Our target is to convert to the top of the 12%/15% tax bracket. If we do that, we should be able to get all of the 401k converted by age 70, so no RMD's. If we do no conversions, we will get hit by a tax torpedo when RMDs and SS kicks in. That's a big ouch.

                  Comment


                    #10
                    Originally posted by corn18 View Post
                    I have run the numbers for converting our 401k to Roth. It makes a lot of sense for us to convert as much of our 401k as possible from age 55 to 69. Our target is to convert to the top of the 12%/15% tax bracket. If we do that, we should be able to get all of the 401k converted by age 70, so no RMD's. If we do no conversions, we will get hit by a tax torpedo when RMDs and SS kicks in. That's a big ouch.
                    Of course you can't generally convert the 401k while you are still working for the company, so that only helps once you retire.
                    Steve

                    * Despite the high cost of living, it remains very popular.
                    * Why should I pay for my daughter's education when she already knows everything?
                    * There are no shortcuts to anywhere worth going.

                    Comment


                      #11
                      Originally posted by disneysteve View Post

                      Of course you can't generally convert the 401k while you are still working for the company, so that only helps once you retire.
                      Great point. We are still trying to retire @ 55 and our 401k plan allows withdrawals in accordance with the IRS rule of 55. The rule of 55 allows you to withdraw from your 401k if you leave your job in the year you turn 55.

                      Comment


                        #12
                        Originally posted by corn18 View Post
                        I have run the numbers for converting our 401k to Roth. It makes a lot of sense for us to convert as much of our 401k as possible from age 55 to 69. Our target is to convert to the top of the 12%/15% tax bracket. If we do that, we should be able to get all of the 401k converted by age 70, so no RMD's. If we do no conversions, we will get hit by a tax torpedo when RMDs and SS kicks in. That's a big ouch.
                        Why would you want to convert it all? Do you have taxable pensions or some other source of expected taxable income in retirement?

                        Comment


                          #13
                          Originally posted by Petunia 100 View Post

                          Why would you want to convert it all? Do you have taxable pensions or some other source of expected taxable income in retirement?
                          Affirmative. Our taxable pension will be $48k and our SS will be $58k ($106k total). Still a little room to convert some 401k, but that causes more of our SS to be taxed as well, so it's a double whammy.

                          Comment


                            #14
                            Hey, when did the emails about responses start working again! I just got DisneySteve's response to my question in my email today 4-14-20. Let me tell you, I have been on SSD since around 48 I think. Let me tell you that cut off any chance of having a huge IRA at the knees so to speak. Almost all the retirement money we have stashed away is due to investing small amount of the profits of the small online business that we run. I thought it was looking really healthy until this virus hit and the stock market tripped over its feet. I check my number every Friday and was happy to see that at least last week they were doing a bit better. All that to say that I don't think I will have that much trouble with taxes when pulling out a withdrawal from my IRA. I also got smart and started a Roth IRA so I don't have to pay taxes on the profits and currently if needed, can still be used as a savings account as long as I don't touch the interest.

                            I'm proud of myself for what I have accomplished in putting money into a retirement account as most people would have other things that they thought took priority with as small an income as we have. I know that I can't continue too many more years with dealing with the online business and then we will be up the proverbial creek. When I look at all the savings combined, I divide them by $1000 to see how many years that we can get $1000 monthly to go with my SS check. Hoping to be able to get my husband on SSD as well. He hasn't been able to see well enough to drive (or work) since September. This means I have been doing it and now that the lockdown is in place here in PA I've only done quicky errands using drive-thru lines and I have now realized how driving into the city for doctor appointments has been about killing me. My RA, for the most part, has been in much better control, however, my Remicade has been canceled due to the pandemic and I hope I don't have to go too long without it and then have to deal with trying to get back into good control. I guess I know I don't have much more time left of being able to do any money-making activities to increase our savings for in retirement. Our biggest cost is our home and my husband refuses to try to sell it for a cheaper place to live. Not that the mortgage is that much it is the taxes and the propane and electric which is way out of whack from our income!

                            Thanks for all the good advice!
                            Gailete
                            http://www.MoonwishesSewingandCrafts.com

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