RMD withdrawals

RMDs are an increasing percentage of the account each year. The percetnages are based on the remaining life expectancy, For IRAs, you lump all of the same type of accounts together (Traditional, Roth), calculate the RMD and then can take it from any one or several of the accounts. For 401ks, 403bs, 457s, each account has its own RMD that must be taken from that account.

Ira Smilovitz, EA Leonia, NJ

Adding to what Ira said - The 4% number is unrelated to the RMD. 4% is what advisors typically consider the 'safe' longterm annual withdrawal rate for a retiree. The RMD, changing each year, will exceed 4% quickly, at age 73, in fact. One should set aside any excess withdrawal for future growth, not just go with that number at the number to spend each year.

As others have said, your RMD changes every year. To calculate your RMD, the IRS has a worksheet. Go here:

And note that the percentages will be slightly lower starting next year, reflecting an increase in life expectancy (despite Covid). It looks like Pub 590-B hasn't been updated yet for 2022, but a comparison table is here:

The percentages are for information, but the actual computation is to divide by the factor Uniform Life table. The two will yield similar results, but there will likely be a rounding difference. See Appendix A, here:

For people facing or in retirement, I strongly recommend Jane Bryant Quinn's /How to Make Your Money Last/. Among many valuable chapters, she explains where the 4% figure came from, and under which circumstances it is safe to go a bit higher or prudent to go a bit lower.

That's true under the old table. For folks turning 73 in or after the year 2022, the divisor is 26.5 at age 73 and 25.5 at age 74, so we don't exceed 4% until age 75, when the divisor is 24.6.

This is excellent advice. We cannot, alas, simply roll the unneeded money into a Roth and let it grow tax free; but we can add it to our taxable portfolio.

Something else to look at: If you intend to make a substantial donation to charity, you can almost certainly direct your IRA custodian to send your contribution directly to the charity. (It must be a 501(c)3 charity, among other requirements.)

The benefit of that is that the amount you donate directly does not count as part of your IRA withdrawal on line 4 of form 1040, so you don't pay income tax on it,(*) but it still counts as part of fulfilling your required minimum distribution. This arrangement is called a Qualified Charitable Distribution (QCD), and in essence it lets you make a larger contribution than if you wrote a check yourself, without being more money out of pocket.

(*) I haven't checked the forms, but I believe the QCD money is also excluded from the computation for how much of your Social Security benefit is taxable, and whether you are subject to the IRMAA surcharge on your Medicare premium. If I'm mistaken, I'd welcome correction on this point.

That's correct. The calculation of taxable Social Security benefits uses Form 1040 line 4b, which is the taxable amount of IRA distributions after subtracting the QCD. The IRMAA calculation uses AGI, Form 1040 line 11, which excludes the QCD.

(Form 1040 line numbers are for 2021.)

Bob Sandler

Note that if you have multiple IRA's, your RMD requirement can be met from any of them as long as you take out the required amount. If you have four accounts with $25K in each and your RMD for the year is 5%, you can take $5K out of one account, or $2500 out of two, or whatever. However you cannot aggregate 401(k)'s. Each 401(k) is subject to its own RMD. Also, if you have a spouse who is the sole beneficiary and they are more than 10 years younger than you, the RMD percentages change. And there are (at least so far) no RMD's from Roth IRA's. I assume none of these are inherited IRA's, which is a whole different kettle of fish.

The 4% guideline is completely indpendent of RMD's. Some people can't wait until age 72 to start living on their retirement plans. As long as you are over age 59 1/2, you can take as much as you like. As mentioned above, if you are taking more from your IRA's in RMD's than you need to live on, you should reinvest it in taxable accounts.

The net effect of the comments above regarding chariable contributions can in effect make your chariable contributions that come directly from your IRA fully tax-deductible, even if you don't itemize. But you have to be old enough to take RMD's for that to work. (I don't know if the SECURE act froze the IRA-to-charity age at 70 1/2 or changed it to 72, but I assume it probably changed it.)

The SECURE Act did not change the minimum age for making a QCD. It's still 70 1/2. A QCD effectively makes the contribution fully tax-deductible without itemizing, whether or not you are old enough to have to take an RMD. If you do have to take an RMD (age 72 or older), the QCD counts towards the RMD.

Bob Sandler