Advice for RMD monies

If any of these retirement assets is a 401(k) plan with your current employer, you do not have to take a RMD from that plan as long as you are still working there.

You are correct, although contributing to Roth will not reduce your (current) tax liability since Roth contributions aren't deductible.

Nice problem to have.

401ks and IRAs. That means any gains don't need to be reported until I withdraw them. Am I also correct that gains from a mutual fund are not considered capital gains? Thanks

Mutual funds held outside retirement accounts normally declare both ordinary income and capital gains. So you don't loose any tax benefits of the lower rates on qualified dividends or capital gains just because the investments are inside mutual funds.

Don Priebe, EA in Upstate NY

If this is your own Roth which you funded or converted traditional IRA funds to, you have no RMD for the Roth.

For the very first year in which you reach age 70 1/2 you can delay taking that RMD until April 1 (not 15th) of the next year. If you do this you will have two RMDs that next year.

Gains from mutual funds inside of an IRA are not capital gains. Or even taxable income.

Only when you take money from the traditional IRA will you have any taxable income and it will be fully or partially ordinary income.

You can only contribute to a Roth IRA if you have earned income, which you seem to have, and your net income is low enough. If your company has a Roth 401(k) then there is no income limit. It does not lower your tax bill though.

A strategy might be to take out RMD and buy stock in a regular account, because the LONG term capital gain would be taxed at up to 20%, plus optionally 3.8% medicare tax. Also, dividends will be taxed.

More detail: If you make more than 400k/450k then your capital gains and dividends are taxed at 20+3.8#.8%. If you make more than

200k/250k then your capital gains and dividends are taxed at 15+3.8.8%. Otherwise your tax rate is 15%, but if you are in the 15% tax bracket then the tax rate is 0%.

I don't think conversions count towards the RMD. I asked this question once here and forgot the answer.

Also, if you don't need the money you can donate it. For 2013 you can do a qualified charitable donation (QCD) straight from your IRA. I don't think all states conform to this rule, so write back and let us know. Your RMD or a larger amount can be the charitable donation.

Yes.

remove_ps wrote

While this is a great idea, it will not apply to OP Jane who says that she will be turning 70 **next** year (and possibly 70.5 in 2015) unless Congress is kind enough to extend the rule beyond 2013. Making a QCD directly from the IRA has the advantage that the QCD does not show up in the MAGI that is used to calculate Medicare premiums. Thus, the Medicare premiums might be smaller than they would be if the entire RMD were taken as income and a charitable donation made and a deduction taken on Schedule A for the donation. The taxability of Social Security benefits is also affected by AGI and MAGI, and so reducing these is also beneficial.

Dilip Sarwate

Well, that's good news. More than half of my 401k assets are with my current employer. I do expect to be employed when I turn 70. When I do stop working will I have to do any kind of catch-up withdrawal or will it simply be a normal RMD based on my age?

>

Unless your employer's plan requires the RMD even if you're still working, your first RMD is for the year you retire. There is no catching up required. See page 36 of IRS Publication 575.

As for your problem of having too much income. I can fix that with a method suggested by a participant in another forum. Loan me as much as you would like to exclude from tax. I will refuse to pay it back. You can take a bad debt deduction, and I'll happily pay the tax on the unpaid loan regardless of what bracket it puts me in. It's a win win.

Phil Marti VITA/TCE Volunteer Clarksburg, MD

Strange how many people I know have made me the same generous offer. I'll add your name to the lonnnng list.

Yes, everyone is a philanthropist under the right circumstances.