About Required Minimum Distribution (RMD), Some in After Tax Dollars??

[diitto]

I turned 73 this year and so I’m required to withdraw a Required Minimum Distribution (RMD) on my retirement accounts.  

In one of those accounts the number I had calculated (12/31/24 balance / age factor for 73) was exactly the same number determined by the financial company in which I have that money invested…. So far, so good…. But when they withdrew that amount, they told me that a very small amount of the money in that withdrawal, a little over 2% of the total amount withdrawn, was AFTER TAX money….  Based on something I must have paid tax on close to 40 years ago….

My thought would be that the IRS would want me to withdraw a little bit more money such that the total amount withdrawn, 100% in BEFORE TAX dollars, would hit that total amount calculated as the required RMD.   That they would want ALL OF IT to be BEFORE TAX $$’s because my thought is the IRS is wanting TAX on the calculated amount…. But if some of the calculated amount contains some AFTER TAX $$’s, they would not be getting the full amount they seek in the RMD…. 

But all that I’ve been able to read or hear from folks who seem to know is that all I have to do is withdraw the full calculated amount and that’s it, even if a part of that withdrawn amount is NOT going to net the government any additional taxes????  

Can you help???  Am I good with just withdrawing the calculated amount even if some if that amount is AFTER TAX money???  Or do I need to take more out until I hit the calculated amount with 100% PRE TAX $$’s????  thanks…. 

[VolvoGirl]

Yes don't worry about that.  It's only the gross amount you need to withdraw.  Not the taxable amount.   You just have to take out the RMD minimum amount.    The after tax amount should be on your 1099R in box 5.  

[fanfare]

based on your 2% figure, the taxable amount on your 1099-R will be 98% of the amount you had distributed.

@diitto 

[diitto]

Thanks VolvoGirl...  What you say is what I'm learning elsewhere as well...  But I guess my question comes down to "WHY" the IRS wants us to take out an RMD in the first place...  It's my belief they compel RMD's at a certain age because they want us to pay tax on that money...  There is NO RMD requirement on say ROTH accounts and I get why, because that money has already had taxes paid when the money was first invested...  But I contend for my tax deferred (before tax) money, they are seeking TAXES and I would think they would want to say we want you to take out an amount of money for an RMD that is 100% BEFORE TAX...  You and others are telling me it's not that way and so I get it but I'm one of those types that likes to understand why...  Still seems to me that the sole purpose for RMD's is to get tax revenue into the IRS so what's in it for them if they allow me to have part of my RMD be money on which the IRS gets nothing???  Does that make sense???  I get that I'm not likely phrasing the question very well...  So I'm sort of ok with saying "OK, I've met the requirement for taking out the correct amount for my RMD"...  Check...  But I still don't get the part about why the IRS should be ok with me only having say 98% of the money be BEFORE TAX...  I mean what if it was say 50% BEFORE TAX and the other 50% AFTER TAX...  They would only get half of the tax money I believe the RMD formula was really intended to grant them...  But they're ok with that???  I get the numbers...  Just not the IRS reasoning...  Thoughts on that???  Sorry I'm being complicated but I'm just trying to understand...  My first year at RMD's...  thanks for the help...

[diitto]

Oh, and yes, I'm a classic overthinker so there's that...  < sigh > ...  Thanks again!!!!

[VolvoGirl]

Hey you can even make a QCD Qualified Charitable Distribution with the RMD and not pay any taxes on it.  That’s what I’m doing.  I don’t turn 73 until next year but at 70 1/2 you can start making QCD.  You can donate 100,000 a year tax free.  

[diitto]

Interesting and good to know...  thanks for the feedback and the help...  !!!!

[rjs]

First of all, it's not a matter of what the IRS wants, or what would allow them to collect more tax. The IRS just follows the tax laws. It's working the way Congress designed it, for whatever reason.

Secondly, the primary purpose of the RMD is to reduce the amount of money that you have in the IRA, so that you can't keep it all there forever. Taking out after-tax contributions helps to reduce the balance.

[SteamTrain]

@diitto 

If you do think of doing a QCD for all or part of your RMD distribution....just be aware that a QCD can only be done directly from an actual "IRA" account, and not from some other retirement account, like a 401k or 403b.

(at least under current tax laws.......not sure why they are being so picky about that)

[diitto]

One follow up question.  I see that Form 8606 is needed to be able to report pre vs post tax $$'s in an RMD.  Next year, what version of Turbo Tax should I buy (MAC version) to make sure that it will include this Form 8606 capability???  thanks...

[SteamTrain]

You need to be clear on what retirement source your RMD is coming from.

For a 401k or TSP, the 8606 wouldn't be needed.

....for an IRA  not sure when it's required, usually for an actual "IRA Contribution" at the time it was contributed, but I'm not sure about the distributions.  Others, like 403b???  ( @dmertz  knows better than I)

_______________

All desktop versions (historically) have all the same forms...but Deluxe or higher would be recommended, especially if you have a state to file too, since "Basic" doesn't have a free state download.  (Deluxe from 3rd parties ((Amazon, BestBuy...etc)) have two version, one with the free state download and one without, so you have to carefully check.  Deluxe bought directly from TTX always has the free state download.)

[diitto]

Hi...  thanks...  Yes, I always buy AT LEAST Deluxe and sometimes I've bought Premier but never higher than that...  And yes, I DO have state taxes that I also do...  I just want to be sure I would buy a version that would offer these Form 8606.  

I have four different types of retirement accounts and so I had to do four RMD's, one for each, and to my knowledge only one, a 401k, had that 2% of the $$'s being post-tax with the 98% being pre-tax...  All the others were all pre-tax I believe...  And none of the accounts was a traditional IRA...  I am considering, however, consolidating all four accounts INTO a single IRA so I can, in the future, just withdraw a single RMD from that one account...  

[SteamTrain]

@diitto   Yeah...I edited my above comment on the 8606, as I'm not sure the 8606 is really needed on the distribution from a traditional IRA, since it's mostly used at the time a contribution is made on an IRA ....but I polled @dmertz for comment as he and a few others would know better about needing it for a distribution.

[diitto]

Where would I even look (I'm long since done with 2024's taxes but I do still have the TurboTax Deluxe 2024 software on my Mac) to see how and where TT handles the RMD section on taxes???  Never done an RMD until the 4 I've taken out since the start of 2025 that will be dealt with on my 2025 taxes in early 2026...  Just want to be as smart as I can be for when this comes up early next year...  ???  thanks...

[dmertz]

The fact that the financial institution knows that any part of the distribution is nontaxable means that the distribution is not from an IRA.  A financial institution has no way to know if any particular amounts distributed from an IRA are taxable or not.

As VolvoGirl said, the both pre-tax and after-tax portions distributed count toward the RMD for that account.

The point of retirement accounts is to supplement income during retirement, so Congress put provisions into the law to make sure that these funds would eventually be distributed, preferably to the employee rather than to the employee's beneficiaries.  As you pointed out, it also makes sure that the collection of taxes on this deferred income would not be pushed out to the future indefinitely.

If you are inclined to make QCDs, the funds in a qualified retirement plan could be rolled over to an IRA after having completed the RMD for the year.  In this case, since the funds have an after-tax component, the rollover could be split between traditional and Roth IRAs with the pre-tax portion going to the traditional IRA and the after-tax portion going to the Roth IRA.  After that, you could make QCDs from the traditional IRA.