RMD for newly opened Traditional IRA (older than 74)

[SamsNephew]

Hi all, 

I'm hoping a tax professional can assist with this question.

If someone older than 74 opens a Traditional IRA in March 2022 (to take advantage of the 2021 tax deduction), when would the first RMD need to be taken? The IRS website says that the first RMD must be taken by April 1, 2022 (because of age), but if the account was just opened in 2022 is that correct? Or would it be by December 31st? If RMD was taken by April 1, 2022 wouldn't that take away from the maximum contribution reported in 2021.

[Mike9241]

do you have other iRA a/c's from which you were required to take RMDs because you were older than 70.5 prior to 2020?  those RMDs are required to be continued under the old rules.

then the 2022 RMDs would be based on your IRA a/c balances at 12/31/21 without the 2021 contribution made in 2022. your IRA custodians would probably send you notification of the amount of RMD's required for 2022

see IRS PUB 590-B starting with page 8

https://www.irs.gov/pub/irs-pdf/p590b.pdf 

[fanfare · Accepted solution]

@SamsNephew 

In your scenario,

if you open an IRA in 2022 for 2021 (to take the deduction),

the first RMD is due in 2023, at any time you choose but no later than Dec 31, 2023.

you're already over age 72.

[fanfare]

You're better off just investing your money for long term capital gains in a regular investment account.

This lowers your tax bill overall.

The Congress basically gutted the Stretch IRA.

[SamsNephew]

No, this is the first & only IRA opened for the individual. Custodian has an RMD calculator, but custodian representative wouldn't answer the question & referred me to a tax professional. I'm thinking of taking QCD's to avoid the withholding & donate how I normally would.

[MarilynG1]

• Contributing to an IRA may result in a reduction of the QCD amount you can deduct. If you make a deductible IRA contribution after you turn 70 1/2, it will reduce the amount of the QCD that's excluded in your gross income.

Click this link for more info on Qualified Charitable Distributions.

[fanfare]

@MarilynG1 

TurboTax says so, but where does it say this in IRS Pub 590B ?

I can't find anything.

[ColeenD3]

It's on page 15. 

Offset of QCDs by amounts contributed after age 701/2. Beginning in tax years after December 31, 2019, the amount of QCDs that you can exclude from income is reduced by the excess of the aggregate amount of IRA contributions you deducted for the taxable year and any prior year that you were age 701/2 or older over the amount of such IRA contributions that were used to reduce the excludable amount of QCDs in all earlier years.

[SamsNephew · Accepted solution]

Thanks MarilynG1, after your post I did a little digging and found the translation of the IRS jargon into common language. You helped me avoid trouble with the IRS down the road. (Now, I just need to earn 10% in capital gains to offset the federal withholding.)

The SECURE Act instituted a QCD anti-abuse provision that prevents older working IRA holders from “double-dipping”; that is, reusing their tax-deductible IRA contributions as QCDs. Specifically, IRA holders who have earned income, and who are contributing to an IRA after age 70 ½ and taking a tax deduction for that contribution, will not be allowed to make a QCD until ALL the post-age 70 ½ IRA tax deductible contributions have been subtracted from the proposed QCD amount.

https://www.forbes.com/sites/bobcarlson/2020/01/28/more-questions-and-answers-about-the-secure-act/?...

[SamsNephew]

Thank you so much fanfare. The IRS RMD worksheet shows that RMD is based off of the IRA balance on December 31 of the previous year (line 1).

https://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf

Since this IRA wasn't opened until 2022, as you said RMD would not be required in 2022 (zero balance on 12/31/21 divided by any age distribution period will equal zero). RMD would be due & can only be calculated starting in 2023 based on the IRA balance on 12/31/22 and my age in year 2023. Although not required, I may take a distribution before the end of 2022. I definitely plan to take my first RMD by 4/1/23, just to be safe.