RMD (Required Minimum Distribution) from your IRA

[Supervisor42]

The age to begin RMD was 72, but I never worried about it, being a dedicated drinker and smoker...
But it seems now that I might make it due to our advances in medical care.
They upped the age to 73 in 2022, but it still could happen to me.
IRS.gov :

New for 2023: The Secure 2.0 Act raised the age that account owners must begin taking RMDs. For 2023, the age at which account owners must start taking required minimum distributions goes up from age 72 to age 73, so individuals born in 1951 must receive their first required minimum distribution by April 1, 2025.

An RMD is the smallest amount you must withdraw from your tax-deferred retirement accounts every year after a certain age. At some point in your life, you may have put money into tax-deferred retirement accounts, such as Individual Retirement Accounts (IRAs) and 401(k) workplace retirement accounts. The key word here is “tax-deferred.” You postponed taxes on your contributions and earnings; you didn’t eliminate them. Eventually, you must pay tax on your contributions and earnings. RMDs make sure that you do that.

If you don't, you have to pay a stiff tax come tax time.
Has anyone dealt with this?
My question is, does it have to be from the principal of the IRA? In addition to earnings?
I used their calculator, and the RMD doesn't even cover the earnings of real income that it makes.

 

[Supervisor42]

"Stiff" = 25%.

If an account owner fails to withdraw the full amount of the RMD by the due date, the amount not withdrawn may be subject to an excise tax of 25%, 10% if the RMD is timely corrected within two years.

 

[Mountain trapper]

I don't understand any of this, but my investment manager sends me a monthly check out of my ROTH IRA's. There is no tax liability on these distributions. Our income has been structured to keep us in a zero tax bracket.

 

[elkhound]

Mine is at age 75

 

[Neb]

I am not familiar with the details of RMDs I can share...

I questioned my advisor why our monthly withdrawals are coming out of one of my retirement accounts and not from my wife's. I was told I would be first subject to RMDs being 4 years older than my wife.

I am just short of 67 now. Not sure when RMDs apply to me.

Ben

 

[old tex]

I have an old style IRA which you do pay taxes on the total drawn out. I went in to talk to someone about the rules, etc for me to draw it out. Honestly she looked at me like I was stupid, maybe because they didn't manage my IRA. But anyway here's what she told me. (Is it true, I have no idea but she was a professional). On Jan 1 you need to find out what the total in your IRA is. Then you tell the company handling it how much (what percentage of it you want to go to taxes), I'll pick 19% because that the highest (as I understand it) without making huge amounts. They take the number of years stated by the government (based on average life span), divide it into your balance as of Jan 1, take out the taxes & pay them & then send you a check or transfer it to you bank account. I hope that was clear (4 different interruptions typing this). That's what I'm going to do & if it blows up in my face, I guess that I'll end up paying more taxes. I hope that she was right but honestly it just seems too simple for anything that involves the government.

 

[Supervisor42]

I got another $12 question...
I have stocks in the 'pretax' IRA account. I also have 'after-tax' accounts with stocks in them...
If I sell stocks in the IRA, pay income tax on the money, and use it to buy the same stocks to put in the after-tax account, would that work?
The problem for me is, I don't usually spend enough to even keep up with the earnings of the IRA.
...I just don't want to ever be in a 20% tax bracket again.

 

[Mountain trapper]

Just curious here, why don't more people choose to prepay the taxes on their IRA contributions? It always made sense to me to pay the taxes while I was working and making good money. I haven't had to pay taxes on any of my distributions yet.

 

[old tex]

Just curious here, why don't more people choose to prepay the taxes on their IRA contributions? It always made sense to me to pay the taxes while I was working and making good money. I haven't had to pay taxes on any of my distributions yet.

I don't know the answer to your exact question. I do know that by the time they came out with the rule that you could basically pay to convert the old IRA to one that you didn't have to pay taxes on we would have had to come up with something like 35 thousand dollars. We didn't because we were earning something like 37 thousand a year & didn't have the 35 thou sitting around.

 

[Supervisor42]

Just curious here, why don't more people choose to prepay the taxes on their IRA contributions? It always made sense to me to pay the taxes while I was working and making good money. I haven't had to pay taxes on any of my distributions yet.

I can answer that one!
I was hiding sheltering the 20% of it that woulda been handed over to guvment, and investing it.
I figured in the next 20 years, it would earn at least enough cover the 20%, making it essentially 'tax-free'.
Boy! It did that and a LOT more!
The guvment's plan was to postpone collecting taxes on the 401K contribution and get taxes on 300% of the original amount later.

 

[Tim Horton]

When the IRA and another plans of some kind came into being during my working years.. I already had a personal simple system and plan in place for later years.. With that in mind, I never participated in these options.. Almost every place I worked after that time bombarded me with ..join the IRA, or whatever.. flyer with a pay check until I retired.. With most any employer there seemed an ..insurance agent.. or such associated with them selling these plans.. I immediately suspected there was a premium and possibly kick back paid off the top of any contribution in all this.. None of these employers were happy with me for not participating..

Turns out when my kids went to college and such the money was available and without any of the kinds of the usual strings attached for the use of the money at the time..

My 5 cents of experience..

 

[Supervisor42]

When the IRA and another plans of some kind came into being during my working years.. I already had a personal simple system and plan in place for later years.. With that in mind, I never participated in these options.. Almost every place I worked after that time bombarded me with ..join the IRA, or whatever.. flyer with a pay check until I retired.. With most any employer there seemed an ..insurance agent.. or such associated with them selling these plans.. I immediately suspected there was a premium and possibly kick back paid off the top of any contribution in all this.. None of these employers were happy with me for not participating..

Turns out when my kids went to college and such the money was available and without any of the kinds of the usual strings attached for the use of the money at the time..

My 5 cents of experience..

I guess I should explain more about why I fell for the 401K thing...
The employer I spent the most years with had 50% matching for whatever you put in, up to 8% of your paycheck...
The 'catch' was, it wouldn't become 'vested' for 5 years. (No problem for me).
They did this to reduce employee turnover, because if you went to a competitor before 5 years, a bunch of your 401K would vanish in a puff of smoke!
Every bit of their matching was vested when I retired, so I walked away with all of it!