Required Minimum Distribution (RMD)

[Bali Hai Again]

I'm sorry, but I'm not inclined to run out endless hypotheticals for you. I refer you to the two publications I linked earlier for the rules concerning IRA and qualified plan distributions. If you need more than that, perhaps you should see a tax professional for advice on how to manage your retirement plans.

Not a problem. Thank you for responding!

 

[Bali Hai Again]

Well, Labor Day is a complete “WASHOUT” here in the Northeast! The last supposed traditional day for fun cookouts for the summer in these colder climates. Had to cook hotdogs inside on the stove. At least my beer stayed somewhat cold! Could’ve been worse…..colder and SNOW!! Believe it or not I have seen snow (rarely) here this time of year.

For those wondering I don’t have a question and not looking for a shoulder to cry on. Happy Labor Day to all! Cheers!

 

[cbg]

Snow? Where in the NE are you, Bali? I'm on Boston's South Shore - it was rain and probably high sixties. You up in the mountains?

 

[Bali Hai Again]

Snow? Where in the NE are you, Bali? I'm on Boston's South Shore - it was rain and probably high sixties. You up in the mountains?

Hi cbg, It didn’t snow here today just rain and humid like you, but, I have seen it snow here (rarely and not very much) in the past this time of year. It melts as it accumulates and is gone the next morning. I’m located in the Finger Lakes region of NYS about 2000 feet above sea level.

I love visiting Boston, a lot of history there. Lots to do and the people are friendly, Freedom Trail, Old Iron Sides, Whale Watches, Plymouth Rock (pebble), Salem Witch Museum, etc. if one wants to make that drive.

My wife has never been to Boston and it’s on our bucket list for the future.

Nice chatting with you! Have a good evening!

 

[cbg]

Oh, I love the Finger Lakes region. Haven't been there in years though.

Have a good night!

 

[Bali Hai Again]

December 31, 2022 is used to calculate the RMD and must be taken by April 1, 2024. (You get the extension until April of the following year for your first RMD only, 2024 RMD will also have to be taken in 2024)

Next question if you don’t mind: Given the above circumstances normally can part of the the inital required RMD be taken before December 31, 2023 and taxed in 2023 and the rest of the required RMD be taken by April 1st and taxed in year 2024?

I understand that the age for required RMD withdrawals might change to 73 after year 2022 if it passes the Senate (70% chance that it will from what I glean from the financial websites). It has already pass the House overwhelmingly.

Any input is highly appreciated.

 

[Taxing Matters]

Next question if you don’t mind: Given the above circumstances normally can part of the the inital required RMD be taken before December 31, 2023 and taxed in 2023 and the rest of the required RMD be taken by April 1st and taxed in year 2024?

You can wait until April 1 of the next year to take distribution of the RMD for your initial year. So if your first year for RMDs is 2023, you must take your RMD for 2023 no later than April 1, 2024. But ALL of that RMD is still income for 2023. And you would still need to distribute the full RMD for 2024 by December 31 of that year. See the IRS page on RMDs.

 

[Bali Hai Again]

You can wait until April 1 of the next year to take distribution of the RMD for your initial year. So if your first year for RMDs is 2023, you must take your RMD for 2023 no later than April 1, 2024. But ALL of that RMD is still income for 2023. And you would still need to distribute the full RMD for 2024 by December 31 of that year. See the IRS page on RMDs.

Thank you Taxing Matters!

 

[Bali Hai Again]

A friendly update for those that might be interested:

IRS page on RMD’s shows that a person subject to first RMD in 2023 and waits until April 1 the following year to take the distribution is taxed as income in 2024.

Further research reveals a person subject to first RMD in 2023 can split the distribution and take partially in 2023 and the rest by April 1 the next year in effect paying income taxes on the 2023 RMD in two separate tax years.

This is important for tax damage control. If a person has an amount of other taxable income in addition to the RMD for 2023 that they would not have in 2024 for instance. A partial distribution in 2023 that would still keep them in the same tax bracket and the rest in April 2024 that would also not kick them into a higher tax bracket along with the 2024 RMD would be the goal.

 

[Bali Hai Again]

Update:

Being mindful of the admonishment I may receive for dredging up an old thread, I feel compelled to do so since I started the thread.

For those interested:

By all accounts Congress will enact the bipartisan Secure Act 2.0 and send to the President to sign into law before end of 2022. In that provision among many other positive issues for this nations workers younger and older, the RMD age will increase from 72 to 73 in year 2023.

It sends the message that the legislature in this country is truly committed to the welfare of everyone.

I do not have a legal question.

 

[Taxing Matters]

It sends the message that the legislature in this country is truly committed to the welfare of everyone.

That's not my impression of where the allegiance of most of the members of Congress lie. If that were true, Congress would function much more smoothly and work more on solutions that are in the middle of the political spectrum instead of catering to the extremists in their party. Rather, members of Congress tend to vote more based on the dollars thrown to them by lobbyists. Until we can fix that problem I don't see much likelihood that most members of Congress will actually ever be "committed to the welfare of everyone."

 

[PayrollHRGuy]

Rather, members of Congress tend to vote more based on the dollars thrown to them by lobbyists.

Which just means their singular allegiance is to getting reelected.

 

[Bali Hai Again]

I cannot disagree with the above comments, but I will accept every bone (dollars) thrown to me. We have a more diversified Congress than ever before. We have a more diversified workplace than ever before specifically in upper management roles. I have seen nothing but positive results from that diversity.

Now, the next improvement would be to remove the earnings cap on social security tax for high wage earners and eliminate the social security income tax that lower income retirees are carrying the burden.

 

[Taxing Matters]

Now, the next improvement would be to remove the earnings cap on social security tax for high wage earners...

If you do that, you break the concept of Social Security. It was meant to roughly model a retirement system where what you put in bears at least some resemblance to the benefits you receive. That's what made it popular enough to pass Congress in the 1930s. Your solution would turn it into more of a welfare program in which the high income earners subsidize the poor (and in the case of Social Security, the middle class). That's not a change I can support.

and eliminate the social security income tax that lower income retirees are carrying the burden.

I do think that taxing the Social Security benefits that working elderly people receive was not a good move when it was passed and remains bad policy today. It was a money grab by Congress to help reduce our heavily debt burdened public fisc. There are other ways to balance the budget than by taxing Social Security benefits. I'd start by looking for things we can cut out of the budget, but since it seems every program has some constituency for it Congress can't find the collective will to do that.

 

[LdiJ]

If you do that, you break the concept of Social Security. It was meant to roughly model a retirement system where what you put in bears at least some resemblance to the benefits you receive. That's what made it popular enough to pass Congress in the 1930s. Your solution would turn it into more of a welfare program in which the high income earners subsidize the poor (and in the case of Social Security, the middle class). That's not a change I can support.

I agree with you, but I do think that the upper income level needs to be better adjusted for inflation.

I do think that taxing the Social Security benefits that working elderly people receive was not a good move when it was passed and remains bad policy today. It was a money grab by Congress to help reduce our heavily debt burdened public fisc. There are other ways to balance the budget than by taxing Social Security benefits. I'd start by looking for things we can cut out of the budget, but since it seems every program has some constituency for it Congress can't find the collective will to do that.

I agree with you here as well. I do understand why they did it, but it still was not a good move. It punishes both those who continue to work after full retirement age and those who invested wisely for their retirement. It can be quite a sticker shock for some retirees.