Age 70.5 and commencing RMD

[S T]

Taxpayer birth date is Sept - turns age 70 Sept 2014, age 70.5 then will be March 2015, taxpayer will be required to receive RMD no later than April 2016 for age 70.5.

In 2015 would the taxpayer also be required RMD for age 71 (Sept 2015) distribution, i.e. required to take a age 70.5 distribution as well as age 71 distribution in year 2015? Will be calculated on the balance as of 12/31/2014

Or if age 70.5 distribution is delayed to April 2016, then will take age 70.5 (calculated on 12/31/2014 balance and age 72 distribution (calculated on 12/31/2015) ??

My confusion is the year turning age 70.5 and whether or not there also has to be a age 71 distribution.

Trying to avoid a tax year that would have two distributions with attaining age 70.5.

I did find a prior thread on this, however would like confirmation on my thoughts.

Thanks

Sandy

[Lion]

If you DELAY the first distribution to the following 1 April, then you will actually have TWO distributions that year: the delayed one from the prior year and the usual one for the current year.

If you do NOT delay the first distribution, you will have one distribution per year each year.

Each year's distribution is based on the prior 31 December balance -- even a delayed distribution is based on the 31 December balance when it first could've been taken. No two distributions will be based on the same balance.

Delaying can come in handy if the first year is a high income year. But, for most people, the double distribution in one year due to delaying can bump that year's income up and not be beneficial.

[Roland Slugg]

I can see why you could be confused by this when the TP's birthday comes in the latter half of the year. The rules refer to the "required starting age," which is defined as the year in which the IRA owner turns age 70.5. Once someone reaches the "RSA" a distribution is required each year, except that the first required distribution can be delayed until April 1st of the following year.

Lion says that for most people it will be best to take the first RMD in the earlier of the two possible years, but I don't understand how he/she could possibly know this. It all depends on tax brackets. It might be true for some people, but for YOUR particular client, there is no substitute for running the numbers. If you can predict the TP's income accurately for the two years involved, just do the pro-forma projections and see.

[Burke]

So, to clarify, the first distribution is not required (in this case) until 4/1/16. But if it IS delayed to that point (i.e, not taken in 2015), then two distributions will be required in 2016? I have this same situation. Birthday in October.

[Lion]

The OP wanted to avoid a tax year with two distributions. I told him how to do that. I was not giving an opinion but saying what I had in my notes/text from a Retired Taxpayer course some years back when I was at HRB, based on the tens of thousands of tax returns with RMD where Block had calculated the percentage that did better taking one distribution per year instead of delaying with two distributions the second available year. It just supported the OPs desire to avoid two distributions in one year, so I mentioned it. He will have to calculate what is best for his client if the client is willing to consider delaying their first distribution.

[ATSMAN]

I tell my clients NOT to take 2 distributions in a single tax year. With the 1099 income plus social security income generally they risk bumping into a higher tax bracket.

On my system I sort clients by birth date and I warn them when they approach 70 to call the IRA or 401(k) custodian and request a RMD before even they receive the mandatory notices.

[S T]

Thanks for the posts - Lion did respond to my OP regarding two distributions in one year, and that was helpful.

I am trying to provide the Taxpayer with the what if's for year turning age 70.5 as opposed to delaying to the following April.

When there is a taxpayer that has a birthday in the last half of the year (July - Dec) the rules do become somewhat confusing.

Thanks

Sandy

[Gary2]

Personal opinion: With many seniors (but by no means all, or even most), the simplicity of doing a single RMD per year outranks any tax savings that may occur from postponing the first RMD into the second year.

[FEDUKE404]

Would generally avoid two RMDs in one year

Personal opinion: With many seniors (but by no means all, or even most), the simplicity of doing a single RMD per year outranks any tax savings that may occur from postponing the first RMD into the second year.

Agree strongly.

Too many people only see the immediate "tax savings" by skipping year #1 distribution.

There are a lot of things that can go wrong with two years in one. A higher tax bracket entry, more of Soc Sec benefits taxed, and even getting into paying multiples for Medicare B premiums for making "too much money."

FE

[taxea]

additionally if the tp doesn't need the cash have them direct transfer it into a ROTH IRA.

[Gene V]

If you are talking about IRA

additionally if the tp doesn't need the cash have them direct transfer it into a ROTH IRA.

An amount distributed from a traditional IRA to meet RMD rules does not quality for conversion into a Roth IRA
TTB page 13-14 and IRC 402(c)(4)(B)

[taxea]

can't they start a new roth? or if not put it into CD's or a medical plan

[Gary2]

To put it another way, a rollover is not a distribution, and won't satisfy the RMD requirements. And they'll still need to have taxable compensation to contribute to a Roth.

Few people with RMDs will be eligible to contribute to an HSA, since Medicare disqualifies you from HSA contributions.

Advising clients to put their money in CDs borders on investment advice. Tread carefully.

[Lion]

They can still make a charitable contribution from their IRA RMD. GIve gifts to relatives to get money out of their estate. Add to their fully-taxable investment accounts.