Not Taking My 2022 RMD: Consequences

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stargazer
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Not Taking My 2022 RMD: Consequences

Post by stargazer »

I have not yet taken my 2022 RMD. My retirement account holdings consist largely of equities. My account balance as of 12-31-2021 (upon which my 2022 RMD is based) was robust. That account balance has declined a lot since then. Given the dramatic stock market performance thus far in 2022, if I take my 2022 RMD, and thereafter the market rebounds, I will have dug myself into a deep deep hole.

If there is a further stock market decline, I am considering not taking the RMD and, as a result, subjecting myself to the 50% penalty specified by the IRS.

If I do this, what mechanism is set into motion? Does the custodian report me to the IRS? Do I fess up to the IRS on my own? Does the payment come out of my retirement account, or can it be made from some other (non-tax-advantaged) account?

The IRS website reads: "Yes, the penalty may be waived if the account owner establishes that the shortfall in distributions was due to reasonable error and that reasonable steps are being taken to remedy the shortfall. In order to qualify for this relief, you must file Form 5329PDF and attach a letter of explanation. See the instructions to Form 5329".

What exactly does this language mean?

Given my circumstances, what advice can anyone offer? (Yes, I do appreciate the need to have a more balanced portfolio going forward. Lesson learned.)

stargazer
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ResearchMed
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Re: Not Taking My 2022 RMD: Consequences

Post by ResearchMed »

stargazer wrote: Thu May 19, 2022 1:38 pm I have not yet taken my 2022 RMD. My retirement account holdings consist largely of equities. My account balance as of 12-31-2021 (upon which my 2022 RMD is based) was robust. That account balance has declined a lot since then. Given the dramatic stock market performance thus far in 2022, if I take my 2022 RMD, and thereafter the market rebounds, I will have dug myself into a deep deep hole.

If there is a further stock market decline, I am considering not taking the RMD and, as a result, subjecting myself to the 50% penalty specified by the IRS.

If I do this, what mechanism is set into motion? Does the custodian report me to the IRS? Do I fess up to the IRS on my own? Does the payment come out of my retirement account, or can it be made from some other (non-tax-advantaged) account?

The IRS website reads: "Yes, the penalty may be waived if the account owner establishes that the shortfall in distributions was due to reasonable error and that reasonable steps are being taken to remedy the shortfall. In order to qualify for this relief, you must file Form 5329PDF and attach a letter of explanation. See the instructions to Form 5329".

What exactly does this language mean?

Given my circumstances, what advice can anyone offer? (Yes, I do appreciate the need to have a more balanced portfolio going forward. Lesson learned.)

stargazer
Take the RMD, pay the taxes, and then promptly re-invest the money into the exact same holding if you like. Then you are "even", except that one part is pre-tax and the other post-tax.

Why in the world would you want to forfeit 50%? Do you really think you would be losing that much or more by taking the RMD and reinvesting?

RM
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HeelaMonster
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Re: Not Taking My 2022 RMD: Consequences

Post by HeelaMonster »

I am still a few years away from RMDs, so please pardon the naive question. But can't you simply recalculate and reduce the amount of RMD for this year, since you haven't taken it yet? Or is it somehow locked in to a previous calculation?
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Re: Not Taking My 2022 RMD: Consequences

Post by Chardo »

HeelaMonster wrote: Thu May 19, 2022 1:45 pm I am still a few years away from RMDs, so please pardon the naive question. But can't you simply recalculate and reduce the amount of RMD for this year, since you haven't taken it yet? Or is it somehow locked in to a previous calculation?
RMD is based on previous year end value. It cannot be recalculated or reduced.

What will happen, though, is current year decline, along with taking that RMD, will mean next year's RMD should be significantly lower.
HeelaMonster
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Re: Not Taking My 2022 RMD: Consequences

Post by HeelaMonster »

Chardo wrote: Thu May 19, 2022 1:47 pm
HeelaMonster wrote: Thu May 19, 2022 1:45 pm I am still a few years away from RMDs, so please pardon the naive question. But can't you simply recalculate and reduce the amount of RMD for this year, since you haven't taken it yet? Or is it somehow locked in to a previous calculation?
RMD is based on previous year end value. It cannot be recalculated or reduced.

What will happen, though, is current year decline, along with taking that RMD, will mean next year's RMD should be significantly lower.
Thank you. As said, naive question.
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GerryL
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Re: Not Taking My 2022 RMD: Consequences

Post by GerryL »

ResearchMed wrote: Thu May 19, 2022 1:42 pm
stargazer wrote: Thu May 19, 2022 1:38 pm I have not yet taken my 2022 RMD. My retirement account holdings consist largely of equities. My account balance as of 12-31-2021 (upon which my 2022 RMD is based) was robust. That account balance has declined a lot since then. Given the dramatic stock market performance thus far in 2022, if I take my 2022 RMD, and thereafter the market rebounds, I will have dug myself into a deep deep hole.

If there is a further stock market decline, I am considering not taking the RMD and, as a result, subjecting myself to the 50% penalty specified by the IRS.

If I do this, what mechanism is set into motion? Does the custodian report me to the IRS? Do I fess up to the IRS on my own? Does the payment come out of my retirement account, or can it be made from some other (non-tax-advantaged) account?

The IRS website reads: "Yes, the penalty may be waived if the account owner establishes that the shortfall in distributions was due to reasonable error and that reasonable steps are being taken to remedy the shortfall. In order to qualify for this relief, you must file Form 5329PDF and attach a letter of explanation. See the instructions to Form 5329".

What exactly does this language mean?

Given my circumstances, what advice can anyone offer? (Yes, I do appreciate the need to have a more balanced portfolio going forward. Lesson learned.)

stargazer
Take the RMD, pay the taxes, and then promptly re-invest the money into the exact same holding if you like. Then you are "even", except that one part is pre-tax and the other post-tax.

Why in the world would you want to forfeit 50%? Do you really think you would be losing that much or more by taking the RMD and reinvesting?

RM
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arcticpineapplecorp.
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Re: Not Taking My 2022 RMD: Consequences

Post by arcticpineapplecorp. »

another thing you can do is send the dividends to cash/settlement rather than reinvest and then take out the cash that has paid through 2022, which will account for some (not likely all) of your RMD. That way you won't be selling shares low, you'll be taking out cash from your IRA.

As you can see if you're not willing to sell shares even though you're required to take some money out of your IRA each year, you might want to put a certain amount in your IRA in bonds or cash (though bonds have fallen too!) so you have something to sell when you need to. In addition, it can take years to recover from stock declines, so you could have at least 2-3 years of RMDs in cash/bonds so you have assets that aren't going to decline like stocks can when you need to draw money.

one final thought is sell your shares for your RMD January 2nd each year. Don't wait. Yes, those shares you sell might have risen in value if you'd sell at the end of the year, but you're kicking yourself now and not sure if those shares will recover by the end of the year (or take years). Another way you can approach this is if the market goes up (say by the end of 2022) you take the RMD 1/2/2023. But if the market goes down further this year, you can wait to take the RMD 12/31/2023 (giving time to recover, while realizing it's possible it can go even lower over the course of the year 2023).

Otherwise, the other advice given of selling your shares in IRA (for RMD) and buying back same shares in taxable is also a very viable strategy.
Last edited by arcticpineapplecorp. on Thu May 19, 2022 2:06 pm, edited 1 time in total.
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afan
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Re: Not Taking My 2022 RMD: Consequences

Post by afan »

You do not have to liquidate your positions. You can transfer the shares in kind from the IRA to a taxable account. You will still have to pay the taxes, but your positions can remain unchanged.
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exodusNH
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Re: Not Taking My 2022 RMD: Consequences

Post by exodusNH »

stargazer wrote: Thu May 19, 2022 1:38 pm I have not yet taken my 2022 RMD. My retirement account holdings consist largely of equities. My account balance as of 12-31-2021 (upon which my 2022 RMD is based) was robust. That account balance has declined a lot since then. Given the dramatic stock market performance thus far in 2022, if I take my 2022 RMD, and thereafter the market rebounds, I will have dug myself into a deep deep hole.

If there is a further stock market decline, I am considering not taking the RMD and, as a result, subjecting myself to the 50% penalty specified by the IRS.

If I do this, what mechanism is set into motion? Does the custodian report me to the IRS? Do I fess up to the IRS on my own? Does the payment come out of my retirement account, or can it be made from some other (non-tax-advantaged) account?

The IRS website reads: "Yes, the penalty may be waived if the account owner establishes that the shortfall in distributions was due to reasonable error and that reasonable steps are being taken to remedy the shortfall. In order to qualify for this relief, you must file Form 5329PDF and attach a letter of explanation. See the instructions to Form 5329".

What exactly does this language mean?

Given my circumstances, what advice can anyone offer? (Yes, I do appreciate the need to have a more balanced portfolio going forward. Lesson learned.)

stargazer
Do you need the RMD money to live on? If not, then whenever you take the funds out, reinvest them immediately into the same types of funds in your taxable account. You've made a lateral move. Tax rates increase in 2026, so taking a bigger distribution now may not be as bad of a deal as it might otherwise appear.

As someone else said, it is possible to take the distribution in kind, though not all brokers have that option.

Presumably the market's volatility will settle down later this year. Selling $x and reinvesting it into the same funds two days later will essentially be a non-event. (Selling low, then buying low.)
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Re: Not Taking My 2022 RMD: Consequences

Post by stargazer »

arcticpineapplecorp wrote: "Another way you can approach this is if the market goes up (say by the end of 2022) you take the RMD 1/2/2023. But if the market goes down further this year, you can wait to take the RMD 12/31/2023 (giving time to recover, while realizing it's possible it can go even lower over the course of the year 2023)."

In both approaches, you are speaking about the 2023 RMD. Is that correct?

stargazer
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ResearchMed
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Re: Not Taking My 2022 RMD: Consequences

Post by ResearchMed »

afan wrote: Thu May 19, 2022 2:06 pm You do not have to liquidate your positions. You can transfer the shares in kind from the IRA to a taxable account. You will still have to pay the taxes, but your positions can remain unchanged.
Yes.

In this case, you'll actually end up with *more* invested, because the amount transferred "in kind" from the IRA to taxable would be 100%, not the full amount reduced by the taxes paid.
That means you'd need to pay the taxes from other money.

Of course, if you wanted to have "more invested", you could just take that extra and... invest it. :happy
As long as this is a taxable account (which RMDs must go into), there aren't limit on annual contributions, or such.

And if you do the "in kind" transfer, then *nothing* is sold. It doesn't matter if "the market" goes up, down, or sideways.

RM
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afan
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Re: Not Taking My 2022 RMD: Consequences

Post by afan »

I hope the tax experts will speak up but my limited understanding says that you MUST take the RMD. It is not a case of "Take the distribution OR pay a penalty" I thought it was " if you take the RMD late, you must pay the tax on it AND pay the 50% penalty". I do not think that paying the penalty removes the requirement to take the distribution.

Remember, I am not a tax expert.
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billfromct
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Re: Not Taking My 2022 RMD: Consequences

Post by billfromct »

Just take the RMD out of your fixed income allocation & get it over with. You do have a fixed income allocation in your taxable IRA, don’t you?

I take my RMD early in January to get it done so my kids won’t have to worry about it if I pass away during the year.

bill
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Re: Not Taking My 2022 RMD: Consequences

Post by arcticpineapplecorp. »

stargazer wrote: Thu May 19, 2022 2:16 pm arcticpineapplecorp wrote: "Another way you can approach this is if the market goes up (say by the end of 2022) you take the RMD 1/2/2023. But if the market goes down further this year, you can wait to take the RMD 12/31/2023 (giving time to recover, while realizing it's possible it can go even lower over the course of the year 2023)."

In both approaches, you are speaking about the 2023 RMD. Is that correct?

stargazer
Yes was talking about what to differently for next year.
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Re: Not Taking My 2022 RMD: Consequences

Post by an_asker »

stargazer wrote: Thu May 19, 2022 2:16 pm arcticpineapplecorp wrote: "Another way you can approach this is if the market goes up (say by the end of 2022) you take the RMD 1/2/2023. But if the market goes down further this year, you can wait to take the RMD 12/31/2023 (giving time to recover, while realizing it's possible it can go even lower over the course of the year 2023)."

In both approaches, you are speaking about the 2023 RMD. Is that correct?

stargazer
You didn't quote the entire paragraph, so the context is lost. Here is the entire paragraph:
one final thought is sell your shares for your RMD January 2nd each year. Don't wait. Yes, those shares you sell might have risen in value if you'd sell at the end of the year, but you're kicking yourself now and not sure if those shares will recover by the end of the year (or take years). Another way you can approach this is if the market goes up (say by the end of 2022) you take the RMD 1/2/2023. But if the market goes down further this year, you can wait to take the RMD 12/31/2023 (giving time to recover, while realizing it's possible it can go even lower over the course of the year 2023).
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Re: Not Taking My 2022 RMD: Consequences

Post by Flyer24 »

A post giving a recommendation to be dishonest was deleted. Please follow all regulations.
WillRetire
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Re: Not Taking My 2022 RMD: Consequences

Post by WillRetire »

OP: It's only May. You have until the end of the year to take the RMD. A lot can, and will, happen between now and then. The market may rebound, making you feel better about taking your RMD.

Remember: RMDs were waived in 2020 due to hardship from the pandemic. Not the first time that happened, and likely not the last.

As for choosing to pay a 50% penalty, the only scenario I can think of where that makes sense is if they are in holdings that cannot be bought elsewhere, and which you feel will go up again by a lot & worth holding onto. Otherwise, wait & see.
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stargazer
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Not Taking My 2022 RMD: Consequences

Post by stargazer »

OP here.

Thanks to all for your suggestions, particularly taking the RMD and immediately using the distribution to buy an equivalent asset mix in a taxable account. This approach will put my mind at ease (at least a bit).

stargazer
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celia
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Re: Not Taking My 2022 RMD: Consequences

Post by celia »

stargazer wrote: Thu May 19, 2022 1:38 pm Given the dramatic stock market performance thus far in 2022, if I take my 2022 RMD, and thereafter the market rebounds, I will have dug myself into a deep deep hole.
I see it quite differently. All the money in the account still has to be taxed, right? Right now (or after the market declines more), you can pull out more shares to meet your RMD than if you had removed them on January 2, because shares are now worth less. In fact, when you do it, remove them “in-kind” (by transferring shares instead of cash) to your Taxable account. As long as you don’t need those shares for living expenses, they should eventually return to their higher value. And you will have paid the same taxes while removing a larger percentage of the IRA, thus making future RMDs smaller than if the shares had never dropped in the first place. [“Take that, IRS!” I’d say the laugh is on them.]

If you need to spend them for living expenses, you can do a “mental accounting” in your head and finish spending excess RMDs from earlier years instead, that were more than needed in the year withdrawn. Then, after the 2022 RMDs have returned to their earlier value, you can spend them on future living expenses.
If there is a further stock market decline, I am considering not taking the RMD and, as a result, subjecting myself to the 50% penalty specified by the IRS.
Don’t do that. You will still have to remove the RMD value as well as pay another 50% of the value (as the penalty).
If I do this, what mechanism is set into motion? Does the custodian report me to the IRS?
In a way, they do report it as they have to report the year-end balance of every IRA they held that year, regardless of your age. They also have to report the RMD (if any), that the taxpayer had as well as new contributions and withdrawals for the year. But they don’t single you out as maybe you took the RMD out of another IRA you held at another custodian. But the IRS should be able to see who didn’t take enough RMDs.
Do I fess up to the IRS on my own? Does the payment come out of my retirement account, or can it be made from some other (non-tax-advantaged) account?
The IRS will send you a CP letter in 2 to 4 years, when they audit the returns for this year.
The IRS website reads: "Yes, the penalty may be waived if the account owner establishes that the shortfall in distributions was due to reasonable error and that reasonable steps are being taken to remedy the shortfall. In order to qualify for this relief, you must file Form 5329PDF and attach a letter of explanation. See the instructions to Form 5329".

What exactly does this language mean?
Think of “reasonable error” as things you couldn’t control, such as your death, cognitive decline, not remembering you had RMDs when you first turn 72, all your papers burned in your house fire or the tornado blew them away. You obviously know you have an RMD this year, but if you die tomorrow, maybe your kids/executor who manage your account, might not know.

Think as “reasonable steps” as taking corrective action as soon as you become aware of the error. The IRS is only looking to get the taxes you agreed to pay later while you were contributing. You are now at the “later” timeframe and the taxes are now due. You could have withdrawn some of the money earlier and paid the tax but more is now required to be withdrawn and be taxed.


PS. After you remove the RMD, it might be good to convert part of that IRA to bring down future RMDs (while you can convert more stock shares for the same tax hit). But before you do that run all the expected numbers for this year through tax software so you will be prepared for the income taxes next April.
Last edited by celia on Thu May 19, 2022 8:24 pm, edited 1 time in total.
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michaeljc70
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Re: Not Taking My 2022 RMD: Consequences

Post by michaeljc70 »

billfromct wrote: Thu May 19, 2022 2:31 pm Just take the RMD out of your fixed income allocation & get it over with. You do have a fixed income allocation in your taxable IRA, don’t you?

I take my RMD early in January to get it done so my kids won’t have to worry about it if I pass away during the year.

bill
+1

I don't have RMDs (age 51), but I have required (or big penalties) 72t distributions. I wil take them from my FI portion this year if the market is still down. Of course, bonds are also down, but that is another story.
Chuckles960
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Re: Not Taking My 2022 RMD: Consequences

Post by Chuckles960 »

I cannot figure out why the OP asked the question in the first place. There are no circumstances in which the proposed course of action makes sense financially.
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celia
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Re: Not Taking My 2022 RMD: Consequences

Post by celia »

Chuckles960 wrote: Fri May 20, 2022 3:32 pm I cannot figure out why the OP asked the question in the first place. There are no circumstances in which the proposed course of action makes sense financially.
+1. If the OP didn’t take the RMD that is required this year, next year she will still have to take it (and pay the penalty) along with next year’s RMD which will be larger due to a higher December 31, 2022 balance (due to not removing the 2022 RMD).

Even if OP waits until the market returns to previous highs, that may take a few years. At that time, the untaken RMDs and and penalties will still be owed, when all that money could have been growing in Taxable to it’s original high value instead.

By letting the growth happen in an IRA instead, OP is just asking to have a higher tax bill. Right now “taxes are on sale” on the RMD since more stock shares can be withdrawn for the same tax owed on the RMD.

For example, if the RMD is $1,000 and shares used to be worth $100, 10 shares would have been needed to be withdrawn to need the RMD. If shares are now worth $75, 13.4 shares would need to be removed. But if shares drop to $50, then 20 shares would be needed to be removed. The taxes are the same in all cases, since it is the value on the withdrawal date that will be taxed.


Even if OP was to die this year, the heirs would have to start withdrawing, and would likely withdraw more than the OP as they need to empty the IRA within 10 years, unless the remainder is given to charities instead.

OP, Are you still with us ? Do you have further questions?
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stargazer
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Not Taking My 2022 RMD: Consequences

Post by stargazer »

OP here.

It is now clear what I should do (take the RMD and immediately invest the proceeds in an equivalent portfolio in a taxable account.

Thanks to all who responded.

stargazer
afan
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Re: Not Taking My 2022 RMD: Consequences

Post by afan »

Or just take them in kind. No need to sell in the IRA and use the cash to buy in the taxable account
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Re: Not Taking My 2022 RMD: Consequences

Post by jharkin »

ResearchMed wrote: Thu May 19, 2022 1:42 pm
stargazer wrote: Thu May 19, 2022 1:38 pm I have not yet taken my 2022 RMD. My retirement account holdings consist largely of equities. My account balance as of 12-31-2021 (upon which my 2022 RMD is based) was robust. That account balance has declined a lot since then. Given the dramatic stock market performance thus far in 2022, if I take my 2022 RMD, and thereafter the market rebounds, I will have dug myself into a deep deep hole.

If there is a further stock market decline, I am considering not taking the RMD and, as a result, subjecting myself to the 50% penalty specified by the IRS.

If I do this, what mechanism is set into motion? Does the custodian report me to the IRS? Do I fess up to the IRS on my own? Does the payment come out of my retirement account, or can it be made from some other (non-tax-advantaged) account?

The IRS website reads: "Yes, the penalty may be waived if the account owner establishes that the shortfall in distributions was due to reasonable error and that reasonable steps are being taken to remedy the shortfall. In order to qualify for this relief, you must file Form 5329PDF and attach a letter of explanation. See the instructions to Form 5329".

What exactly does this language mean?

Given my circumstances, what advice can anyone offer? (Yes, I do appreciate the need to have a more balanced portfolio going forward. Lesson learned.)

stargazer
Take the RMD, pay the taxes, and then promptly re-invest the money into the exact same holding if you like. Then you are "even", except that one part is pre-tax and the other post-tax.

Why in the world would you want to forfeit 50%? Do you really think you would be losing that much or more by taking the RMD and reinvesting?

RM
+1 paying 50% tax to leave it in the 401kis nuts.

I don’t know why people get so worked up about RMDs. You don’t have to spend it, you can just reinvest it in equities in a taxable brokerage if you want.the RmD is simply a mechanism to force you to convert it to taxable before you die so the taxes get paid.
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Re: Not Taking My 2022 RMD: Consequences

Post by Katietsu »

jharkin wrote: Fri May 20, 2022 6:45 pm I don’t know why people get so worked up about RMDs. You don’t have to spend it, you can just reinvest it in equities in a taxable brokerage if you want.the RmD is simply a mechanism to force you to convert it to taxable before you die so the taxes get paid.
This has gone right past a lot of people. I have pointed this out a couple of times IRL (in real life) and have gotten a blank stare back.
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Re: Not Taking My 2022 RMD: Consequences

Post by Katietsu »

jharkin wrote: Fri May 20, 2022 6:45 pm I don’t know why people get so worked up about RMDs. You don’t have to spend it, you can just reinvest it in equities in a taxable brokerage if you want.the RmD is simply a mechanism to force you to convert it to taxable before you die so the taxes get paid.
This has gone right past a lot of people. I have pointed this out a couple of times IRL (in real life) and have gotten a blank stare back.
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K72
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Re: Not Taking My 2022 RMD: Consequences

Post by K72 »

jharkin wrote: Fri May 20, 2022 6:45 pm I don’t know why people get so worked up about RMDs.
For me (and probably others), the answer is simple. It's an intense emotional dislike of paying taxes. Powerful driving force it is.
All we want are the facts...
michaeljc70
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Re: Not Taking My 2022 RMD: Consequences

Post by michaeljc70 »

K72 wrote: Sat May 21, 2022 10:20 am
jharkin wrote: Fri May 20, 2022 6:45 pm I don’t know why people get so worked up about RMDs.
For me (and probably others), the answer is simple. It's an intense emotional dislike of paying taxes. Powerful driving force it is.
Sure. But you can't avoid them forever...unless you die. In my mind I wish I had put more in Roths when investing....but in reality....I didn't want to pay the tax back then either. My view has always been to delay them as long as possible unless I was going to be in a higher tax bracket (unlikely in retirement for me).
exodusNH
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Re: Not Taking My 2022 RMD: Consequences

Post by exodusNH »

michaeljc70 wrote: Sat May 21, 2022 10:32 am
K72 wrote: Sat May 21, 2022 10:20 am
jharkin wrote: Fri May 20, 2022 6:45 pm I don’t know why people get so worked up about RMDs.
For me (and probably others), the answer is simple. It's an intense emotional dislike of paying taxes. Powerful driving force it is.
Sure. But you can't avoid them forever...unless you die. In my mind I wish I had put more in Roths when investing....but in reality....I didn't want to pay the tax back then either. My view has always been to delay them as long as possible unless I was going to be in a higher tax bracket (unlikely in retirement for me).
And with tax deferred, at death, you just make it your beneficiaries' problems.
michaeljc70
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Re: Not Taking My 2022 RMD: Consequences

Post by michaeljc70 »

exodusNH wrote: Sat May 21, 2022 10:37 am
michaeljc70 wrote: Sat May 21, 2022 10:32 am
K72 wrote: Sat May 21, 2022 10:20 am
jharkin wrote: Fri May 20, 2022 6:45 pm I don’t know why people get so worked up about RMDs.
For me (and probably others), the answer is simple. It's an intense emotional dislike of paying taxes. Powerful driving force it is.
Sure. But you can't avoid them forever...unless you die. In my mind I wish I had put more in Roths when investing....but in reality....I didn't want to pay the tax back then either. My view has always been to delay them as long as possible unless I was going to be in a higher tax bracket (unlikely in retirement for me).
And with tax deferred, at death, you just make it your beneficiaries' problems.
Yep. They say don't count on an inheritance. Sure....However, I am afraid my parents IRAs could really mess up my tax planning/taxes. I know getting free money and having to pay tax on it is a 1st world problem.....and it can always be donated.
exodusNH
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Re: Not Taking My 2022 RMD: Consequences

Post by exodusNH »

michaeljc70 wrote: Sat May 21, 2022 10:41 am
exodusNH wrote: Sat May 21, 2022 10:37 am
michaeljc70 wrote: Sat May 21, 2022 10:32 am
K72 wrote: Sat May 21, 2022 10:20 am
jharkin wrote: Fri May 20, 2022 6:45 pm I don’t know why people get so worked up about RMDs.
For me (and probably others), the answer is simple. It's an intense emotional dislike of paying taxes. Powerful driving force it is.
Sure. But you can't avoid them forever...unless you die. In my mind I wish I had put more in Roths when investing....but in reality....I didn't want to pay the tax back then either. My view has always been to delay them as long as possible unless I was going to be in a higher tax bracket (unlikely in retirement for me).
And with tax deferred, at death, you just make it your beneficiaries' problems.
Yep. They say don't count on an inheritance. Sure....However, I am afraid my parents IRAs could really mess up my tax planning/taxes. I know getting free money and having to pay tax on it is a 1st world problem.....and it can always be donated.
And if you're in your prime earning years, the taxes you'd pay would be at a higher rate than what would have been due. And, depending on your relationship and age, your effective RMD could be many times higher than theirs.

If the desire is to avoid taxes, you've made it worse!
harikaried
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Re: Not Taking My 2022 RMD: Consequences

Post by harikaried »

stargazer wrote: Thu May 19, 2022 1:38 pmThat account balance has declined a lot since then
Sounds like a great opportunity to save on future taxes. Instead of letting the growth accumulate in the tax deferred account needing to pay income taxes on distribution, you can have that growth be at long-term capital gains rate while also reducing the RMD for future years. Maybe you won't even need to realize the taxable gains either (i.e. 0% tax).
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ResearchMed
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Re: Not Taking My 2022 RMD: Consequences

Post by ResearchMed »

harikaried wrote: Sat May 21, 2022 12:23 pm
stargazer wrote: Thu May 19, 2022 1:38 pmThat account balance has declined a lot since then
Sounds like a great opportunity to save on future taxes. Instead of letting the growth accumulate in the tax deferred account needing to pay income taxes on distribution, you can have that growth be at long-term capital gains rate while also reducing the RMD for future years. Maybe you won't even need to realize the taxable gains either (i.e. 0% tax).
Or make a different type of use of the taxes that could now be paid on the depressed prices of the equity:

Take the RMD, and do as above... put it into investments in a taxable account.

And, depending upon your tax bracket cut-off (and any IRMAA cliff if you are or will be on Medicare in 2 years), remove more from the tax-deferred account, pay those taxes, but convert the money to a Roth. Then, NO taxes will be due on future growth of that money, not even capital gains taxes. :happy

Note: You must take the RMD first, before removing additional money by converting it to a Roth.

RM
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secondcor521
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Re: Not Taking My 2022 RMD: Consequences

Post by secondcor521 »

afan wrote: Thu May 19, 2022 2:21 pm I hope the tax experts will speak up but my limited understanding says that you MUST take the RMD. It is not a case of "Take the distribution OR pay a penalty" I thought it was " if you take the RMD late, you must pay the tax on it AND pay the 50% penalty". I do not think that paying the penalty removes the requirement to take the distribution.

Remember, I am not a tax expert.
The way I read Form 5329 part IX, I disagree. (https://www.irs.gov/pub/irs-pdf/f5329.pdf)

If OP doesn't take their 2022 RMD (or takes less than the RMD), they'll owe 50% on the shortfall as a penalty. It's a one time penalty assessed each year.

If OP doesn't take their full 2022 RMD *and* they want to reduce the penalty, then the IRS does expect them to take reasonable steps to address their failure, which would obviously include taking the "missed" RMD as soon as reasonably possible.

But if someone just decides not to take the RMD and pay the 50% penalty, then that's perfectly legal AFAICT. I can't imagine any scenario where it's a smart idea, but it seems perfectly legal to do so.

...

(You may have been thinking of the 6% excise tax on excess IRA contributions, which is assessed every year until the excess is dealt with. The 50% RMD penalty is different as it is only assessed once per RMD.)
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