The RMD Is Sneaky

Bozo | Jan 3, 2018 | 1,375 posts since 2011

For those over 70 1/2, with IRAs, keep a close watch on those RMDs. Last year was a banner year for stocks. As a result, retirement funds with allocations tilted toward equities will need to be evaluated for purposes of RMD.

The RMD withdrawal is based on your total IRA balance as of 12/31/2017 times the multiplier for your age. For a senior in the second year of RMD, that's 3.77%. Folks with a large exposure to equities in 2017 will need to do the math.

The sneaky part is the IRA balance. For folks with top-heavy equity accounts in IRAs, make sure you re-calculate your balance subject to the RMD.

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Bozo | Jan 3, 2018 | 1,375 posts since 2011

Example: Jess has his IRA funds totally in CDs, with an effective yield just north of 2.25%. He hit the RMD last year, and was required to withdraw 3.65% of his year-end balance as of December 31, 2016. His balance, by all accounts, should be less on December 31, 2017, than the year before. Even with a boost in the yearly withdrawal rate in year #2 of RMD, Jess should be able to withdraw the same nominal amount.

Jane, on the other hand, has a potload of equities in her IRA. Her EOY IRA has grown substantially from EOY 2016. Jane needs to do the math. Jane might well need to adjust her RMD withdrawals upward.

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