1st Year Required Minimum Distribution Calculation
My tax status requires I use Table III of IRS Publication 590. I will attain age 70&1/2 in CY2010. I will take my first RMD in CY2010.
IRS publication 590 states "Table III (Uniform Lifetime). For your first distribution by your required beginning date, use your age as of your birthday in the year you become age 701/2."
I believe ESPlanner is using the wrong "Distribution Period" for calculating the RMD. Here's my reasoning.
According to pub.590 I must use the Distribution Period, 26.5, for age 71 to calculate my 1st RMD. The value of my IRA on Dec 31, 2009, in nominal terms, as entered in ESPlanner is $1,200,000. My 1st RMD should be $45,283. ESPlanner withdrew only $43,796 which is the value I calculate if the Distribution Period, 27.4, for age 70 is used. If, ESPlanner does start with the age 70 Distribution Period then all the following calculations for RMD are off by 1 year.
Please explain this apparent discrepancy.
Thanks
James
RSS
This may be a bug. I'll have to check. Post a support request.
Best,
Dick Munroe
Let me say that I am not an accountant, nor an expert at calculating RMD's. However, I am in an Graduate Employee Benefit Law school program that focuses exclusively on pension plan topics among other things and I have been in the pension business for over 12 years and employee benefits for 23 plus years. I've been tested on this topic. The key is determining your required beginning date (RBD). This is the date required minimum distributions (RMD's) must commence. And this is a confusing topic with several caveats such as if you are a 5% owner of a company, or not, whether you are still working, how old is your spouse etc. Here is a general rule that might be helpful. For individuals whose birthday occurs between January and June 30th in the year he or she turns age 70 and 1/2, RBD will be the next April 1 (not the same year the individual turns 70 and 1/2). However, for individuals whose birthdays occurs between July 1 and December 31, he or she will attain 70 and 1/2 in the year he or she turns 71, and the RBD will be the following April 1 when he or she is 72. So I will leave it up to Dick to get back to you. Dick, I am not sure if ESPlanner looks at the distinction between when the person's birthday occurs in a year to determine the appropriate RBD and RMD, so that is why I decided to chime in. I wouldn't be surprised if ESP does this, but since RMD's is a confusing topic, I thought I would add a little information that might be a clue to the correct calculation. James, I see where you are obtaining your numbers. My guess is, if your birthday is in the first half of the year, the 1,200,000 divided by 27.4 equals $43,796 is most likely correct as calulated by ESP. If you were born in the second half of the year, the payment you calculated, $45,283 (1,200,000 divided by 26.5)is most likely correct based on my reading of the tax tables we used in class last spring. Keep in mind, even though the payment due date is April 1, allowing 3 months of deferral of tax, the divisor used to calculate minimum distributions (27.4 for age 70, 26.5 at age 71, 25.6 at age 72 etc...) is based on the age on 12/31
Kelvin
Kelvin,
Thanks for the detailed explanation. The rules for IRA's are anything but clear. I was born in September so I will be 71 this year, the same year I turned 70.5. So I must use the 26.5 divisor on the balance of my IRA on Dec 31 2009, Last Year. I know that I can wait to withdraw this first RMD until April of 2011 but ESP shows that's a bad choice because the RMD for 2011 must also be withdrawn in 2011. This would push me into a higher AGI and tax bracket with all sorts of bad consequences, like loss of my medical deductions (7.5% floor of a much larger AGI) a large increase in my Medicare Premiums in 2013...
Please let me know if anything I've stated above is bogus.
Thanks
James Mavrogenis
There was an issue that will be fixed in the next release.
Best,
Dick Munroe
Our reading of the RMDs is pretty simple. To quote IRS Publication 590:
You must receive at least a minimum amount for each year starting with the year you reach age 70.5.
There are additional "rules" about being able to defer the withdrawal until April of the following year which we do not implement.
So, your RMDs begin in the year you turn 70.5 and do not get deferred in any way.
As of CE V03.04.p13-21
Best,
Dick Munroe
Dick,
Version 2.16.60 is using the wrong divisor to calculate RMD. Since I will be 71 the same year I turn 70&1/2, the divisor should be 26.5. The program is using 27.4. I have verified this by running a case where inflation and investment growth were all set to zero%. The rules are very clear that the divisor that is to be used is based on the age attained at the end of each tax year. Depending on which day/month of the year a person was born he could be both 70&1/2 in a given year and still 70 on Dec 31 of that same year.
Thanks for the improvements in 2.16.60
Regards
James Mavrogenis