Q: I’m new to RMDs and am puzzled by a few things so I have several questions about my IRA. I am hoping you can help.
– Peter in Winter Garden
A: Hi Peter, I will try. I have broken out your series of questions.
I just turned 70 ½, do I have to take my RMD now?
The starting age for Required Minimum Distributions (RMD) is now 72, not 70 ½. Since you just turned 70 ½, your 72nd birthday falls in 2022 so you will not be subject to RMD until next year.
Note, for readers that were subject to RMD in 2020 and opted to not take the RMD due to the COVID related waiver, you must take an RMD in 2021. The waiver was not extended.
How is RMD calculated?
Your RMD will be calculated by taking your Dec. 31, 2021 account balance and dividing by a factor from an IRS table. You will use the 2022 Table III, Uniform Life Table factor for a 72-year-old (27.4). If your spouse is more than 10 years younger than you, use the factor in Table II, Joint and Last Survivor Life Expectancy.
Note to readers: While the CARES Act waived the need to take a RMD in 2020, it did NOT alter how you calculate the RMD for 2021 or future years. For 2021, you would use the same table you have been using from Publication 590. Divide your Dec. 31, 2020 balance by the factor for your age in 2021. However, when calculating your RMD for 2022 and future years, use the new life expectancy tables for 2022.
Also if the 2020 RMD was skipped, chances are good that one’s 2021 RMD will be notably higher than the 2019 RMD. Not only is the account likely larger, but because you are two years older, the life expectancy factor is smaller resulting in a larger percentage that needs to be distributed.
When is it due?
Your first RMD (for 2022) may be taken as late as April 1, 2023. Only this first RMD for 2022 can be delayed into the following year. Your second RMD will be for 2023 and will be due by Dec. 31, 2023. Your 2024 RMD needs to be out by Dec. 31, 2024 and so on every year for the rest of your life.
If you don’t take the first RMD in 2022 and delay it into spring of 2023, you will be taking two RMD in 2023 and reporting the income from both on your 2023 return. That may or may not be good. If your 2022 marginal tax rate will be lower than 2023, delaying is probably not wise. If your 2023 marginal tax rate is lower than 2022, delaying could save you some money.
To avoid taking two RMD in 2023, don’t delay taking your 2022 RMD and take it during 20222. The 2022 RMD can be taken any time in 2022, even before you turn 72. The IRS automatically counts any distributions taken in a given year as part of the RMD for that year until the RMD is met.
Do I have to take the RMD at one time?
No. You can take out whatever you like whenever you like. The IRS does not care how many distributions you take or when. The issue is whether at least the minimum was distributed on time.
From which account should I take RMD?
The Required Minimum Distribution on all types of accounts subject to RMD is calculated separately for each account and must come out of said account unless an exception applies. The most commonly used exception is for IRAs. The RMD for an IRA can be taken from that IRA or any other IRA account if you have more than one IRA account. This exception applies to traditional IRAs, SEP-IRAs, SIMPLE-IRAs and SAR-SEP IRAs.
If you have a question for Dan, please email him with “MarketWatch Q&A” on the subject line.
Dan Moisand’s comments are for informational purposes only and are not a substitute for personalized advice. Consult your adviser about what is best for you. Some questions are edited for brevity.