My mom died in 2021 at the age of 94 and I was 67.
Her 2021 RMD was distributed to me because she hadn't taken it yet.
I did not take a distribution in 2021 or 2022.
I'm totally confused about the rules!
Do I -
1. Use the 10 year rule and deplete the account any way I choose but have it completely depleted by 2031?
2. Take RMDs starting in 2023 based on my life expectant using the IRS tables?
3. Some combination of the two?
Thanks for anyone's help clarifying!
Marilyn
Because you are not a qualified "eligible designated" beneficiary, you must distribute the full amount within 10 years (by 2031).
You are also required to take RMDs during the 10 year period. This rule is not written in the current (2022) version of publication 590-B because the rule was not finalized for the 2022 tax season, but a final rule is coming. (The IRS will not penalize you if you failed to take an RMD in 2021 or 2022, because the rule was not final at the time.)
So you should plan to take an RMD (or more) this year and in the future. The RMD is calculated according to a different formula that @dmertz knows but I don't.
You may want to take more than the minimum so you can spread out the taxes. If you only take the minimum you will have to withdraw a big lump sum in the 10th year and that may have negative tax consequences.
Thank you for your response!
Could you explain why I am not a qualified beneficiary? I thought I was.
@Marilyn227 wrote:
Thank you for your response!
Could you explain why I am not a qualified beneficiary? I thought I was.
I used the wrong term. I should have said you are not an eligible designated beneficiary.
Eligible designated beneficiaries.
An IRA beneficiary is an eligible designated beneficiary if the beneficiary is the owner's surviving spouse, the owner's minor child, a disabled individual, a chronically ill individual, or any other individual who is not more than 10 years younger than the IRA owner.
If you were an eligible designated beneficiary, you would follow different rules on how and when the IRA must be distributed and how your RMDs are calculated.
Because you are not an eligible designated beneficiary, you follow the 10 year rule. As I mentioned above, the 10 year rule requires that you distribute all the money within 10 years AND that you take RMDs during the 10 year period.
As Opus 17 indicated, you are subject to the 10-year rule (as you indicted in #1) and, because your mother died after her required beginning date for RMDs, you are also subject to annual RMDs (as you indicated in #2) using the factor from the Single Life Expectancy table based on your age on your birthday in 2022, reduced by 1 for each subsequent year. The penalty for failing to take such an RMD in 2022 (and 2021) was waived by the IRS due to confusing information provided by the IRS prior to the IRS providing the proposed regulations in early 2022 based on the tax-code changes made by the SECURE Act.
The annual distributions are minimum distributions. You may want to take out more than that each year to avoid needing to take a large taxable distribution in year 10. Also, tax rates are scheduled to increase in 2026.
Thank you both for your help!!
Have a great weekend.
Marilyn
"using the factor from the Single Life Expectancy table based on your age on your birthday in 2022, reduced by 1 for each subsequent year."
Since the OP was 68 in 2022, are you saying the RMD amount for 2023 is based on an age of 67, the RMD for 2024 will be based on an age of 66, and so on? That's a strange formula. Did I understand correctly?
@Opus 17 - once you identify the correct divisor in the table, it simply reduces by 1 each year. So let's say her life expectantly per the table is 26,6 years. Then that is the divisor for the 1st year the 2nd year is 25.6, the 3rd year is 24.6, etc.
I was intentionally nonspecific about the actual factor because, "My mom died in 2021 at the age of 94 and I was 67" is ambiguous regarding Marilyn227's age. With only that statement to go on, Marilyn227 could have been age 67 or age 68 at the end of 2021, meaning that Marilyn227 could have been either age 68 or 69 in 2022, the first beneficiary-RMD year.
I turned 67 on 2/27/2021.
Is my first year to take the RMD in 2022 based on my age of 67?
Actually I'm confused about how I make my 2023 RMD calculation?
take the 12/31/22 balance of the IRA.
then the divisor in 2022 was 20.4 for a 68 year old, so the divisor in 2023 is 19.4 (and 2024 is 18.4, etc.)
https://www.fidelity.com/building-savings/learn-about-iras/irs-single-life-expectancy-table
So the RMD is the 12/31/22 IRA balance divided by 19.4.
But as other mentioned, and based on your financial situation, it might be better to take more than the minimum each year. OTherwise, there is going to be a large lump in Year 10, which could push you into a higher tax bracket. Everyone's situation is unique.
Got it! I might take the minimum in 2023 because I'm retiring in 2024 and will have a drop in income.
I'll spread the rest over the remaining 8 years.
It is far too late to take an RMD for 2022, even a corrective one. And since you won’t be penalized for failing to take a 2022 RMD, I would simply forget about it.
Just start with your 2023 RMD, which would be the balance on 12/31/23 divided by 18.4 (or more. You can always withdraw more than the smallest required amount.)
Remember that an RMD is an amount, not a specific transaction. Suppose that the RMD that you calculate on 12/31/23 turns out to be $5000. That could be satisfied by withdrawal in the amount of $5000 made on 12/27/23 (don’t wait to the last day because it probably won’t go through in time) or it could be satisfied by withdrawing $500 a month over the course of the year so that you would have spending money throughout 2023. As long as the amount you withdraw by the end of the year equals at least the minimum amount.
"Just start with your 2023 RMD, which would be the balance on 12/31/23 divided by 18.4 (or more. You can always withdraw more than the smallest required amount.)"
Nope. NCperson has it correct, the 2023 RMD (required) is the 12/31/22 balance divided by 19.4.
Ok got it...12/31/22 balance divided by 19.4.
I'll probably withdraw a little more than that.
Guess I have to tell Chase what I want to withdraw each year.
@Marilyn227 - and it is not as simple as 1/9 per year to smooth out the remaining RMDS....remember you probaly have the money invested..... if it just cash, then it's not that big a deal comes year 9, but if you have it in stocks / ETFs, etc, a smooth 1/9 per year isn't probably not going to work comes the 10th year.
one idea is to take the withdrawls to the top of your current income bracket..... takes some math and sometimes a financial planner to figure this out.
It's in mutual funds and the market will probably climb going forward I'm hoping!
I've been thinking about that. Thank you for the suggestion.
I am a CPA and can do my own financial planning. I will definitely take you suggestion!!
Marilyn
All else being equal i.e. ignoring the considerations discussed above,
when you are subject to the 10-year liquidation rule for newly inherited IRAs,
to spread the tax impact most evenly over the ten years, and regardless of the Year-End Value, ( @NCperson )
your divisor should be : 10,9,8 . . . 2, 1
OR, 11 - N where N is the number of years gone by. (Beneficiary RMDs start in the year after the year of owner's death).
If the owner died in 2020, the beneficiary would have to fully distribute the plan by December 31, 2030. which is the tenth distribution year.
the amount to distribute is 1 / 1 or 100%.
In the eighth year, you would take out one third of the IRA, there being three distributions to go.
If you are a young beneficiary, or even not so young, this rule would generate much larger RMD than the RMD based on Pub590B formulas.
At a very high age, the Pub590B formula will overtake this calculation and require a larger RMD.
@Marilyn227 while @fanfare specifically states "regardless of the end of year balance", that balance is what is critical to considering how much to withdraw if the goals is SMOOTH withdrawals over 10 years - and you really can't ever get to 'smooth' because the rate of the return of the investmemt is not going to be smooth.
But let's assume a 6% growth of $100,000 with the goal of equal withdrawals each year, then the result looks something like the chart below:
It would take a withdrawal of $13,500 each year to liquidate $100,000 that was growing by 6% per year by the end of the 10th year. The last column is the percent of the prior year balance that would need to be distributed each year.
As everyone's tax situation is different, also consider where you are in you own specific tax bracket and if you are appraoching (or are already on Medicare) as Medicare premiums are subject to IRMAA (which is a 'stealth tax' - google it) as that all can play into the decision of how much to withdraw every year; IRMAA is a function of your AGI which is going to be impacted by these withdrawals The current tax brackets will go back to the 2017 tax bracket structure after 2025 if Congress doesn't pass legislation to extend the current tax brackets (i.e. there is otherwise going to be a tax increase in 2026 without Congressional legislation)
This exercise isn't for the faint of heart!
| End of year | growth | withdrawal | PCT | |
| 1 | 92,500 | 6,000 | $ (13,500) | -14% |
| 2 | 84,550 | 5,550 | $ (13,500) | -15% |
| 3 | 76,123 | 5,073 | $ (13,500) | -16% |
| 4 | 67,190 | 4,567 | $ (13,500) | -18% |
| 5 | 57,722 | 4,031 | $ (13,500) | -20% |
| 6 | 47,685 | 3,463 | $ (13,500) | -23% |
| 7 | 37,046 | 2,861 | $ (13,500) | -28% |
| 8 | 25,769 | 2,223 | $ (13,500) | -36% |
| 9 | 13,815 | 1,546 | $ (13,500) | -52% |
| 10 | 0 | 829 | $ (14,644) | -100% |
Great IRMAA webite explanation:
https://thefinancebuff.com/medicare-irmaa-income-brackets.html
@NCperson you are close. My bene IRA is $60K.
I am going for medicare starting January 2024. I received a very large one time bonus in 2022 and I expect
to lose my job this year. This is a new subject but not sure how I should do the appeal. I will pay an extremely
high IRMAA in 2024 unless I can manage an appeal. I can't appeal based on large one time bonus?
read this link:
work reductions and work stoppages are two conditions that are considered 'life changing' events, so hopefully Social Security will eliminate all your 2022 and 2023 income from their calculations.
This gets 'squirly', but it is Social Security administration (SSA) that gets your income from the IRS and determines your Medicare premium, including IRMAA. If you call Medicare, they are just going to say "Call SSA". Trust me, I just went through all this in the last 6 months. All the correspondance on what your premiums are come from SSA, but the bills asking you to pay for Medicare come from Medicare.
I don't beleive you can appeal until you get the official letter from the SSA about your premiums, which won't be until after you apply for Medicare.
Also, be careful, if you are contributing to an HSA, those contributions need to stop 6 months before you are first eligible for Medicare (which sould like could be July 1 for you).
@NCperson wrote:
Also, be careful, if you are contributing to an HSA, those contributions need to stop 6 months before you are first eligible for Medicare (which sould like could be July 1 for you).
I have to jump in and amend this one point.
I person become ineligible to contribute to an HSA when they enroll in Medicare. It is true for this taxpayer (who says they are 67) that when they enroll in Medicare, their enrollment will be backdated by 6 months, meaning their disqualification to contribute to an HSA will also be backdated.
However, for other people reading this, it is not universally true that a person always becomes HSA ineligible 6 months before Medicare. If you enroll in Medicare from 3 months before your 65th birthday to 6 months after your 65th birthday, your enrollment will be effective on the first day of the month containing your 65th birthday, and that's when you become ineligible to make HSA contributions.
I am actually 69 now and plan on applying for medicare in January and social security in February, which is my 70th birthday month. I'm maxing out my social security by waiting until I'm 70. I'm not contributing to an HSA now so no issue with me there.
Just to clarify about the Medicare Part B IRMAA appeal process. If my work stoppage occurs this year, I can use that life changing event to eliminate all my 2022 and 2023 income?