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Overview Of Required Minimum Distributions (RMDs)

Ken Tumin
Ken Tumin   |     |   5,688 posts since 2009

If you have an IRA or 401(K), you'll have to worry about Required Minimum Distributions (RMDs) when you reach 70 1/2. This blog post at My Dollar Plan has a good overview of RMD and the basics of how to calculate it.

Bozo   |     |   176 posts since 2011
Calculating your RMD is not really all that complicated. You just add up all your "stuff" and plug it into the calculator. You can take your RMD from one account, or several, up to you. All the IRS cares about is getting you to cash in so they can get their tax money before you die. Which is silly, of course, as heirs pay tax on inherited IRAs, and probably at a higher marginal rate than you pay.* On the other hand, capital gains on non-IRA inherited stocks, bonds, real estate, etc., have a stepped-up basis (for the un-initiated, that means no tax; who said life was fair?).

*A really smart Tax Code would eliminate the RMD and accelerate all inherited funds into taxable income over the five years after death. Dead folks wouldn't care, and their heirs probably wouldn't care, either. This RMD is one part of the Tax Code that really, truly, defies logic.
pearlbrown   |     |   2,267 posts since 2010
Bozo, I agree that the RMD part of the Tax Code defies logic.  Most of it is a reflection of a hodge-podge of special provisions for special interests and is so convoluted that I suspect many individuals don't even try to tackle their own returns.  Depreciation (and recouping it) used to be a challenge when it applied in my situation, and processing K1s used to be my definition of a waking nightmare until a few years ago.

Page 95 of this IRS publication shows that about one-third of taxpayers file either Form 1040A or 1040EZ, estimated to take between 7 and 10 hours (2-3 hours to actually complete the form) to complete the process start to finish (depending on which return).  The remaining two-thirds of taxpayers file Form 1040, with an estimated time of 18 hours (which imo is extremely conservative).    It would be interesting to know how many people use an accountant or other paid preparer rather than completing the forms by hand or with the use of tax software. 


paoli2   |     |   2,149 posts since 2011
I have always done the taxes for ourselves and my family (state and federal)  except for the time I was very ill and had to get a relative (a tax accountant) to take over for me.  Soon as I recouped I returned to doing them using mostly 1040s for Fed.  When it came to RMDs I researched ahead of time worked out my system to use and had no problem.  This was all before I got my first computer about a year ago.  I used an old typewriter to type them up and an adding machine for calculations.  The only time I was contacted by the IRS turned out to be "their" error.  I had to prove to them "I" was correct in my computations and after months of haggling they ended up agreeing, I was correct and my original forms were accepted.  One thing my tax acct relative taught me was "never" accept more money from the IRS than you know you are supposed to get.  If they find the error later, they will hound you to get it returned. 

Even tho I have a computer now, I still prefere not to use tax software packages and just do it myself. 
paoli2   |     |   2,149 posts since 2011
I do hope that some are still reading this info since I have a question.  I was using the online calculators to try to get an idea of how much I have to compute for several IRAs for the RMDs.  I seem to be getting the wrong figures until I realized many of the calculators are still using 2011 as the end of the year computation.  My question is when they state "Age at year end" are they using the same year you do the calculations or do you use the year you actually withdraw the RMD?  It seems I have been using the year I actually withdraw the RMDs and so did my tax accountant when I was ill and had to use him.  Is this what it actually means or have we been doing it incorrectly?  Thanks!
Ally6770   |     |   1,862 posts since 2010
When you take a RMD it is a % of the traditional IRA balance of the year before you take the RMD  and based on the age that you will be on DEC 31 of the year you will be receiving the money.

Any questions you can call IRS 1-800-829-1040 and speak to someone directly. The IRS employees  always give a name and an ID number that you can use if you want to document their information. They are very friendly, informative and helpful and will give you the place in the IRS code and publication number with the page number of the information given. You can print this from the IRS.gov site so you can have it for your records.
paoli2   |     |   2,149 posts since 2011
Rosie:  Thank you for the reply and info.  I checked other info and it agrees with you so I must have been doing it right all this time.  I just got confused by other sites which are still using 2011 info.