RMD when reaching 70 1/2 yrs

[taxmom34]

a relative of mine birthday is in sept (she will be 70), can she take a distribution before december 31 and can it be treated as RMD? If she waits to feb, 2013 will she be required to take two distributions?

to simplify my thinking on the age i have been thinking that= law says you must start required distributions at age 70 but we're giving you six months to do it.

when i was preparing tax returns my clients reached age 70 and the half in the same year,, so never had to think about it

[Gary2]

a relative of mine birthday is in sept (she will be 70), can she take a distribution before december 31 and can it be treated as RMD? If she waits to feb, 2013 will she be required to take two distributions?

to simplify my thinking on the age i have been thinking that= law says you must start required distributions at age 70 but we're giving you six months to do it.

when i was preparing tax returns my clients reached age 70 and the half in the same year,, so never had to think about it

In order: yes (trivially), no, and not exactly.

The RMD doesn't begin until the year in which she turns 70 1/2. It's not "70 but you get six months grace period." While it's obvious that she can take a distribution in 2012, it's not an RMD because there is no RMD for 2012.

As for the "two distribution" question: There is an RMD calculated for 2013, based on the Dec. 31, 2012 values. This RMD must be taken no later than April 1, 2014. It doesn't matter if it's one distribution or multiple distributions, so long as the net qualifying distributions taken between Jan. 1, 2013 and April 1, 2014 equal or exceed the 2013 RMD.

Likewise, there will be an RMD for 2014, based on the Dec 31, 2013 values. Again, it doesn't matter whether it's one or more individual distributions, so long as the net qualifying distributions taken between Jan. 1, 2014 and Dec. 1, 2014 equal or exceed the 2014 RMD. Note that "qualifying" means that any portion taken between Jan. 1, 2014 and April 1, 2014 in order to cover the 2013 RMD does not qualify for the 2014 RMD.

For example, if the 2013 RMD is $10,000, nothing is taken out during 2013, and the 2014 RMD is $9,000, then it's perfectly fine to take out $19,000 on March 10, 2014, as a single distribution, to cover both years. But if the $10,000 were taken out during 2013, then the Dec. 31, 2013 balance would be less, and hence the 2014 RMD might only be $8,900. Or she could take out $15K on March 10, and the remaining $4K on Dec. 1. But taking $4K on March 10, 2014 and $15K on Dec. 1, 2014 will leave her deficient for 2013, and subject to penalties.

I'm being pedantic, because different clients have different preferences as to how to mange it - some want it monthly, some want it over and done with early each year. Obviously, I'm contriving the numbers. (I'm also being pedantic because I teach this stuff, and I find this helps some students.)

[taxxcpa]

Rmd

If your RMD is in a brokerage account and you don't want to sell stocks to take the RMD, they can be taken in kind.
I transfer stock from my IRA to my margin account and pay the tax on the value of the stocks transferred out. This keeps me from having to sell stocks to make the RMD if we are at the bottom of a bear market.

[appelman]

I think what Taxmom is asking...

in her 3rd questions is whether she will have to take RMD distributions for 2012 and 2013 if she waits until 2013 to take her first RMD distribution. The answer is no, since, as Gary2 points out, she has no 2012 RMD. She can wait until early 2014 to take her first RMD, but then she will have to take RMD's for both 2013 and 2014 in 2014.

[taxmom34]

ty appelman

exacty what i was looking for.
in the back of my mind i was trying to remember rules about RMD and something popped up about taking two RMD distributions in one year and i was thinking it must be the first year, but i guess that could apply to any time you don't take your yearly RMD.

[FEDUKE404]

Clearing the cobwebs

My sole experience along this line was a client who "forgot" to take the RMD until early (first couple weeks in January) of the following year. At that point we had no choice but to file the Form 5329 (Part VIII) and request a waiver of the penalty.

Although it theoretically should have made no difference to the year in question, we did state the problem was resolved ASAP in the following year. Falls into the general category of "good intentions" or similar.

As is apparently the norm in similar scenarios, the waiver request has apparently been successful.

There is really no such thing as taking "multiple" RMDs in a single tax year. The only thing that really matters is that the amount of funds removed (total for the year) exceeds the dollar amount of the previously calculated RMD(s) for that year. If a person, for whatever reasons, takes out "more" than is required, that generally does in effect lower the dollar amount of the next RMD as there are less funds in the account.

Remember that if a person has multiple IRA type accounts, the funds may come from ANY account. Your bank can send you the RMD for a certain account, you withdraw zero, and still can meet the overall RMD requirements by taking funds from other similar accounts. This scenario is most appropriate when, for example, one account is more or less a bank account at the credit union and another account is composed of common stocks existing in a depressed stock market.

FE

[appelman]

Another quibble

Forgive me for pursuing it, but it is relevant to Taxmom's original post. For the first year in which an RMD becomes required, you may defer it to as late as April 1 of the FOLLOWING year. But in that case you still have to take the 2nd year's RMD before December 31, making two RMD distributions in one year.

[Gary2]

If your RMD is in a brokerage account and you don't want to sell stocks to take the RMD, they can be taken in kind.
I transfer stock from my IRA to my margin account and pay the tax on the value of the stocks transferred out. This keeps me from having to sell stocks to make the RMD if we are at the bottom of a bear market.

Is that because the fees for transferring are less than the fees for selling and repurchasing? Or is there something obscure about the wash sale rules?

In theory, if you sell stock at a loss in an IRA and repurchase it simultaneously outside the IRA, the wash sale rules apply. But since a loss inside the IRA has no direct tax benefit, I'm not sure how this is handled.

[FEDUKE404]

Well, kinda

Forgive me for pursuing it, but it is relevant to Taxmom's original post. For the first year in which an RMD becomes required, you may defer it to as late as April 1 of the FOLLOWING year. But in that case you still have to take the 2nd year's RMD before December 31, making two RMD distributions in one year.

You are indeed correct, taking the approach that when circumstances dictate it withdrawal #1 could be "extended" from the prior year (within the rules) and withdrawal #2 is the otherwise "required" amount. This could lead to two RMD withdrawals within a single calendar year.

Of course, what is muddying up the waters here with the original post is that, apparently, during calendar year 2012 the TP will not have attained the age of 70 1/2 years. Unless I am missing something, the initial RMD would not occur until sometime during 2013, making any 2012 withdrawals moot. Gary2 has addressed that issue quite well.

FE