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Explorer ○○○

Waiving RMDs

Hi,

Waiving RMDs
The bill gives retirees the option to not take required minimum distributions in 2020, a potentially important provision if financial markets are slow to recover from the steep declines in recent weeks.
Typically you have to take your first RMD by April 1 of the year you turn 70½. Subsequently, you have to take RMDs by the end of each year, or pay a penalty of 50% of the RMD amount. The Secure Act retirement-system overhaul raised the age for RMDs to 72, but if you turned 70½ last year you would have still needed to pay RMDs this April.
Because RMDs are calculated based off account balances as of the end of the prior year, the ability to defer them could help millions of retirees from having to take them at a time when their stock portfolios are down sharply from near-record highs of Dec. 31, 2019.
“At that point the Dow was around 28,000,” Slott says. “You would be calculating the RMD and taxes owed based on the value that has vanished, so this could be a big help.”

https://www.barrons.com/articles/the-cares-act-will-allow-people-to-use-their-401-k-savings-penalty-...

S

26 Replies
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Explorer ○○○

Re: Waiving RMDs

Only if you caught the virus, Skip!!!!

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Participant ○

Re: Waiving RMDs

What Skipper says is true.

However, if you need to withdraw $$ from your investments to live on you don't have much choice, aside from choosing to withdraw from fixed income investments rather than stocks.

If you don't need that RMD $$ to live on, you could always just reinvest the proceeds in your taxable account, possibly 100% in stocks given the ongoing sale.

Now if RMDs are indeed waived for 2020, this would allow folks to Roth convert a comparable amount and capture the rebound totally free of taxes...

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Explorer ○○○

Re: Waiving RMDs

Hi,

Our plan is to live on cash out of TIAA Bank MM and do a Roth conversion while still staying in our marginal tax bracket.

That's the plan!

S

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Explorer ○○○

Re: Waiving RMDs

I am trying to make sense of this "relief bill" for retirees. This is what I found for a government check:

  • Each eligible adult will receive up to $1,200 from the government.
  • For every child in a given household, the amount of the total check would go up by $500 - DOES NOT APPLY FOR MOST RETIREES.
  • However, there are income limits on receiving the stimulus check. If your adjusted gross income is less than $75,000 for single filers and $150,000 for joint filers, then you'll get the full amount. For every $100 you earn above those limits, though, the payment drops by $5. That means that for those with no children and income levels above $99,000 for singles and $198,000 for joint filers, no stimulus check would come. Those with incomes between those levels would receive a reduced stimulus check payment. - ADJUSTED GROSS INCOME IN 2019 OR 2020 - WHICH ONE???

Further:

  • We live on and pay taxes on both RMD's AND Roth conversions from RMD's so not taking RMD's probably does NOT apply to those in our situation, right?
  • Further, we have been making large Roth conversions from our IRA's - DOES THE $150,000 INCOME LIMIT ABOVE MEAN THAT TO SAVE RELIEF PAYMENT WE CANNOT DO ANY CONVERSIONS THAT PUSH OUR ADJUSTED GROSS INCOME ABOVE $150,000???
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Valued Contributor

Re: Waiving RMDs

@judger , income used for stimulus checks will be from 2019 [if filed] or 2018 [if not filed yet].   https://www.cbsnews.com/news/stimulus-checks-coronavirus-relief-package-how-much-when/

Skipping RMDs will create a mess for those like me who took it early and had taxes withheld.

YBB
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Explorer ○○○

Re: Waiving RMDs

Hi Yogi,

"Skipping RMDs will create a mess for those like me who took it early and had taxes withheld."

We must pay our taxes anyway, so early RMD withdrawals will be taxed and cause any conversion to be less to stay within a tax bracket.

We have already taken some RMDs, but not all. We will just not take the rest of the RMDs as planned.

S

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Valued Contributor

Re: Waiving RMDs


@NSkipper wrote:

Hi Yogi,

"Skipping RMDs will create a mess for those like me who took it early and had taxes withheld."

We must pay our taxes anyway, so early RMD withdrawals will be taxed and cause any conversion to be less to stay within a tax bracket.

We have already taken some RMDs, but not all. We will just not take the rest of the RMDs as planned.

S


In 2008, people who took RMD early were allow to reverse them. Let us say if I do that but then the tax withheld cannot be reversed and I would have to wait until 2021 to get it refunded.

YBB
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Participant ○

Re: Waiving RMDs


@yogibearbull wrote:

In 2008, people who took RMD early were allow to reverse them. Let us say if I do that but then the tax withheld cannot be reversed and I would have to wait until 2021 to get it refunded.


Go ahead and reverse the RMD amount and then Roth convert the same amount. The withheld taxes would be the same...

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Participant ○

Re: Waiving RMDs

@TheWizard-- earlier on this thread you wrote:

"However, if you need to withdraw $$ from your investments to live on you don't have much choice, aside from choosing to withdraw from fixed income investments rather than stocks.

If you don't need that RMD $$ to live on, you could always just reinvest the proceeds in your taxable account, possibly 100% in stocks given the ongoing sale."

Regarding your first point above, that's what I did by plan and by luck. Last year as the stock market was bounding forward seemingly without limit, I began to put more cash into the money market fund (MMF) within my TIAA 403b GRA. My intention was to take some "profits" from surging equities funds and put them in a secure source from which my RMD's would be drawn. Now that's where I am:  taking RMD's from my MMF, which currently holds about 2 years of projected future RMD's in it. I don't need to take any RMD's directly from volatile equities funds.

This is part of my strategy also to reduce my TREA holdings -- in advance of what could be a real flop in commercial real estate. Move most of that TREA money to the MMF (and some to other FI) -- to be available for RMD's over the next few years.

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Explorer ○○○

Re: Waiving RMDs


@yogibearbull wrote:

@judger , income used for stimulus checks will be from 2019 [if filed] or 2018 [if not filed yet].   https://www.cbsnews.com/news/stimulus-checks-coronavirus-relief-package-how-much-when/

Skipping RMDs will create a mess for those like me who took it early and had taxes withheld.


Thank you, Yogi. As I expected. I was hoping that we could adjust our Roth conversion in 2020 to get below the $150,000 threshold for check cutbacks. We have been playing the keep the income below the amount that affects Medicare payments game. We lose!!!   :-(((

Although the 2020 RMD will be based on much higher 2019 year end IRA values, the Roth conversion will help to deplete the TREA holdings that we have been trying to unwind and greatly reduce.

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Explorer ○

Re: Waiving RMDs


@NSkipper wrote:

Hi,

Waiving RMDs
The bill gives retirees the option to not take required minimum distributions in 2020, a potentially important provision if financial markets are slow to recover from the steep declines in recent weeks.
Typically you have to take your first RMD by April 1 of the year you turn 70½. Subsequently, you have to take RMDs by the end of each year, or pay a penalty of 50% of the RMD amount. The Secure Act retirement-system overhaul raised the age for RMDs to 72, but if you turned 70½ last year you would have still needed to pay RMDs this April.
Because RMDs are calculated based off account balances as of the end of the prior year, the ability to defer them could help millions of retirees from having to take them at a time when their stock portfolios are down sharply from near-record highs of Dec. 31, 2019.
“At that point the Dow was around 28,000,” Slott says. “You would be calculating the RMD and taxes owed based on the value that has vanished, so this could be a big help.”

https://www.barrons.com/articles/the-cares-act-will-allow-people-to-use-their-401-k-savings-penalty-...

S


Am I correct in saying that not taking your RMD in 2020 will in many cases reduce what you will have to pay Medicare in 2022 since adjusted gross income will be much lower.

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Valued Contributor

Re: Waiving RMDs

I don't see that RMDs have been waived, and like Yogi I took mine in early January--some of which was reinvested and some distributed.

We don't qualify for any check from the guv'mint and don't need it.

It's precisely times like these that make annuity income golden (from Traditional it's a perpetual bucket).

I am far more concerned about dealing with covid-19.  No need to worry about taxes from the grave.

Bob

P.S. This is the third Big Bear since I retired in 2000.  Kinda like new wine in old bottles.

 

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Participant ○

Re: Waiving RMDs


@Remotetrader wrote:

Am I correct in saying that not taking your RMD in 2020 will in many cases reduce what you will have to pay Medicare in 2022 since adjusted gross income will be much lower.

Correct.  If not taking RMDs in 2020 will hold your income below the Income-Related Monthly Adjustment Amount (I believe it's $174,000 for joint filers in 2020), you will have to pay only the base Medicare premium in 2022.

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Valued Contributor

Re: Waiving RMDs

Just as a point of info:

IRMAA has several tiers.

Social Security and Medicare long term funding is going to take a heckuva hit from many directions.

One hopes that covid-19 may finally lead to Congress collaborating on long term solutions. The 96-0 vote in the Senate is heartening.

The speed with which emergency legislation has been written and hopefully passed is exemplary--way way faster than all the waffling on TARP years ago.

And the Fed response, by my lights, has been superb.

Bob

 

 

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Follower ○○

Re: Waiving RMDs

Will we still be able to do Qualified Charitable Distributions if we do not have to take RMDs?  


@yogibearbull wrote:

@NSkipper wrote:

Hi Yogi,

"Skipping RMDs will create a mess for those like me who took it early and had taxes withheld."

We must pay our taxes anyway, so early RMD withdrawals will be taxed and cause any conversion to be less to stay within a tax bracket.

We have already taken some RMDs, but not all. We will just not take the rest of the RMDs as planned.

S


In 2008, people who took RMD early were allow to reverse them. Let us say if I do that but then the tax withheld cannot be reversed and I would have to wait until 2021 to get it refunded.


 

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Valued Contributor

Re: Waiving RMDs


@ch4096 wrote:

Will we still be able to do Qualified Charitable Distributions if we do not have to take RMDs?  


@yogibearbull wrote:

@NSkipper wrote:

Hi Yogi,

"Skipping RMDs will create a mess for those like me who took it early and had taxes withheld."

We must pay our taxes anyway, so early RMD withdrawals will be taxed and cause any conversion to be less to stay within a tax bracket.

We have already taken some RMDs, but not all. We will just not take the rest of the RMDs as planned.

S


In 2008, people who took RMD early were allow to reverse them. Let us say if I do that but then the tax withheld cannot be reversed and I would have to wait until 2021 to get it refunded.


 


I don’t take withholding from retirement distributions because it’s easier to match quarterly payments  with estimated income . I avoid tax penalties on estimated taxes by withholding amount from prior yr because my income tax keeps going up. 

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Explorer ○○○

Re: Waiving RMDs


@ch4096 wrote:

Will we still be able to do Qualified Charitable Distributions if we do not have to take RMDs?  

 

Yes.  QCDs are not limited to the amount of your RMD.  Any charitable contribution directly from your traditional IRA after you turn 70 1/2 years is not added to your AGI.  There is a top limit-- $100K, I think, but it is not relevant to me.

John

 

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Follower ○○

Re: Waiving RMDs

jjustice -- Got it!  Thanks.  I'll keep on writing checks to church, favorite local charities, etc. against my IRA money market account.


@jjustice wrote:

@ch4096 wrote:

Will we still be able to do Qualified Charitable Distributions if we do not have to take RMDs?  

 

Yes.  QCDs are not limited to the amount of your RMD.  Any charitable contribution directly from your traditional IRA after you turn 70 1/2 years is not added to your AGI.  There is a top limit-- $100K, I think, but it is not relevant to me.

John

 


 

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Follower ○○

Re: Waiving RMDs

Let me add a note of caution to those hoping to waive 2020 RMD and use part or all of that amount to do a roth convervion. My layman's understanding is that in normal times, if you want to do a roth conversion, you first need to complete your rmd, and then do the conversion with the funds remaining in your ira or 403b.  Since you will NOT be withdrawing your normal rmd amount due to the one-time waiver, there MAY be a problem in converting those funds to a roth.  After all, you still are allowed to do an rmd, so if  you choose not to do that, there may very well be a serious roadblock to do a roth conversion with those funds.  Again, this is just my layman view;  it would be nice to get some expert opinion if available.

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