RMD

[dodboo]

I need to take my first RMD by end of year. My problem is sole stock I have on my IRA has gone down from $25 to $1.50. I have a substantial paper loss and I don’t want to sell any stock to pay my RMD. Should I just pay the penalty to avoid selling any of this stock?  I hope it will one day recover but if I sell shares I lose the upside.

[KochuK]

Hi dodboo, thank you for attending the event and post questions.

Understand your dilemma. 

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What happens if a person does not take a RMD by the required deadline?

If an account owner fails to withdraw a RMD, fails to withdraw the full amount of the RMD, or fails to withdraw the RMD by the applicable deadline, the amount not withdrawn is taxed at 50%. The account owner should file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored AccountsPDF, with his or her federal tax return for the year in which the full amount of the RMD was not taken.

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Recommend that you check with the plan custodian as to what is the RMD for tax year 2022 to gauge the impact of 50% penalty.

Generally, a RMD is calculated for each account by dividing the prior December 31 balance of that IRA or retirement plan account by a life expectancy factor that the IRS publishes in Tables in Publication 590-B.

https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions#... 

 If your sole stock has been in decline, 12/31/2021 balance may be much higher than the current value, hence a larger RMD amount and 50% penalty.

It is an investment decision weighing the RMD penalty now vs. future upside of the stock.

Hope the above helps. Thank you.