I am 74 and must make a IRA RMD of $2,756 ... the 50% penalty is $1,378 for NOT taking this RMD before end of 2016, correct?

Forum|Forum|7 years ago
June 7, 2019
3 replies
34 views

The reason I don't want to take it right now is because my IRA is invested in a single stock that has lost 90% of its value over the past 2 yrs ... I am hoping to hold the stock until it rises again enough to get back some of all of my original investment... taking the RMD of $2,756 right now would cost me $23,476 in lost capital ... of course I may NEVER get back my original capital, but the stock has a tendency to RISE every April ... so maybe it is better to "eat" the 50% penalty right now and hopefully in April 2017 take the 2016 RMD at a lesser loss of capital? And then try to explain to the IRS why the distribution was late?

TurboTax Premier Online

Best answer by dmertz

To avoid the 50% excess accumulation penalty, you must make the distribution by December 31, 2016. Intentionally delaying the distribution beyond year-end would not constitute reasonable cause for the IRS to waive the penalty.

You do have the option to simply not take the RMD and to pay the $1,378 penalty.

You could take the distribution as an in-kind distribution, but your cost basis would become the value on the date of distribution and the rebound would be taxed as a capital gain when realized.

If you have multiple traditional IRA accounts, you can satisfy this RMD with a distribution from the other traditional IRA account.

To avoid RMDs going forward and to minimize taxes, you should probably consider converting the traditional IRA to a Roth IRA while the value is temporarily down.

SweetieJean

Alumni - Champ

"taking the RMD of $2,756 right now would cost me $23,476 in lost capital" Do you really expect it to rebound that much in a few months? Also keep in mind that, as the value of the IRA increases, so will your future RMD.

SweetieJean

Alumni - Champ

"stock has a tendency to RISE every April: Then consider taking your 2017 RMD in April.

dmertzAnswer

Level 15

You do have the option to simply not take the RMD and to pay the $1,378 penalty.

You could take the distribution as an in-kind distribution, but your cost basis would become the value on the date of distribution and the rebound would be taxed as a capital gain when realized.

If you have multiple traditional IRA accounts, you can satisfy this RMD with a distribution from the other traditional IRA account.

To avoid RMDs going forward and to minimize taxes, you should probably consider converting the traditional IRA to a Roth IRA while the value is temporarily down.