So, this will be the first time I’ve withdrawn money from my IRA – the mandatory minimum requirement thing. I found various on-line calculator, fed them my birthdate and the not impressive total amount of my IRA (it’s spread among three different banks for non-important historic ‘convenience’ reasons) and each gave me the same result for this year, though estimated payments in future years varied a bit.
Anyway, the amount for this year is given as an exact down to the penny amount. Let’s say $4,773.26. Okay, so I’ll go to one of the banks and withdraw that amount. And I guess it will need to be reported somewhere on my 1040 for 2025, but that’s a problem for April and I could die in a plane crash before then and it won’t be my problem, will it?
But I hate stupidly exact amounts. Would it cause any problems, now or in future, if I did some rounding? Like, withdraw $4,800.00 instead? or even make it $5,000 even? I mean, beyond the obvious of my total IRA next year being around $200 less? I know it’s called mandatory MINIMUM amount, which makes me think they couldn’t care less how much I go over it…but who knows with government stuff?
Thanks to anyone who knows more than me about this. Which is probably every adult in America.
You can withdraw a nice round amount that exceeds your RMD. You will get a 1099 from the IRA provider which states the amount you withdrew. That full amount will go on your tax return as taxable income. The exact amount that was the RMD will also get entered in your tax return in a different box. That’s to prove to the IRS that you did in fact withdraw at least as much as the RMD amount.
Note that if you have multiple IRAs, the RMD amount is calculated on the sum of all the IRAs. Then that totaled RMD amount can be withdrawn from any combination of one or more of the IRAs.
GOTCHA:
People don’t talk about RMDs much in the context of 401Ks, but they also have RMDs. Once you are the age to be taking RMDs from your IRA(s) you also need to start taking them from every 401k you have unless you are still working for that employer.
GOTCHA #2: If you have multiple 401ks that need RMDs, you need to compute and withdraw a separate RMD from each one. You can’t total them up or remove money from just one or another to satisfy the RMD obligation.
The same RMD percentage based on your age applies to IRAs and to 401ks.
One last point, at the risk of stating the obvious. ROTH IRAs and ROTH 401ks do not have RMDs. Only non-Roth = “traditional” IRAs and 401ks have RMDs.
First, can I roll my IRA into the 401K? If so and I keep working for the employer sponsor of the 401K past RMD age is that then exempt from having to take RMD that year?
Second, how does the combination bit apply to one IRA and one 401K?
Based on what I’ve seen with my parents’ retirement accounts, you don’t need to do the calculation yourself. The custodian of the account (Fidelity, Vanguard or whatever company holds the money) will tell you the amount, though that will be only for the money held there. Because you said you have three retirement accounts, you’ll need to add the three amounts to get the total RMD for the year. BTW, I recommended to my mother that she consolidate her retirement money in one account to make things like RMD calculations simple.
@Dseid
It’s permissible to roll a 401k into an IRA. But not vice versa.
And if you’re working at a place with a 401k, it’s permissible to combine multiple 401ks by rolling the old ones into the current one. But rolls the other way are (AFAIK) not permissible.
Not quite sure what you mean by “combination bit”, but the IRA RMD is a separate requirement with a separate (but similar) calculation to the 401k RMD. If you are subject to RMDs from both kinds they each must be taken from that kind of account. IOW, you can’t pull IRA money out to satisfy a 401k RMD or vice versa.
Be careful.
Adding the three IRA account balances and taking the RMD percentage of that total to determine the RMD is correct. Taking the RMD percentage of each IRA account then adding those computed numbers to get a total RMD is incorrect. The difference is probably pennies, but the IRS will flag those pennies as an error.
I don’t think taking extra RMD in one year affects the next year’s RMD exactly like that. The RMD is calculated based on the account value and your age. For instance, taking out 2x your RMD this year doesn’t mean that next year’s RMD will be zero. Next year you’ll still have an RMD, although the total account value will be less because you took more out this year.
Also, Roth accounts don’t have RMDs. You only have to take RMDs from delayed tax accounts like IRAs and traditional 401ks. One strategy to avoid RMDs is to roll your IRA into a Roth, but that comes with tax consequences. You have to pay taxes on the amount rolled over. Be sure you understand the taxes or talk with a professional before rolling your IRA into a Roth.
IMO it’s silly to ever have more than one IRA and one 401k while working.
After retiring for good there are arguments in favor of maintaining one IRA and one 401k. Conversely, there are also arguments in favor of consolidating the 401k into the IRA. I personally favor the latter approach.
Now in retirement I have one traditional IRA, one Roth IRA, and one non-qualified brokerage account. That’s it. Despite easily a dozen different IRAs and 401ks over the years with different banks, brokerages, or employers. All those prior accounts have been rolled over and closed out as the years went on with the final move being rolling my final employer’s 401ks into my existing IRAs.
For no obvious reason, Congress chose to exempt 401ks from being attached by creditors. But they skipped that provision for IRAs. So if one was to be “sued within an inch of their life” and lost, they might be forced to give up their IRA assets. But not their 401k assets.
Some folks find that difference in tail risk to be a compelling reason to keep as much of their retirement money inside the 401k wrapper as possible. For other people that seems a remote enough risk to ignore.
Many, not all, 401k providers offer pretty shitty investment vehicles with high fees. If your 401k is like that, you’ll certainly be giving up a lot of potential return over the years to “buy” that extra liability shield. OTOH, if your 401k is through a quality low cost operation like e.g. Fidelity, there’s no investment or return-based argument for pulling the funds over to your IRA.
Very slight nitpicky nitpick. The amount of the RMD is based on a percentage of the total. If for some reason the gains in your IRA are massive in one year, the amount you will take out will be more than the previous year.
I know a good amount about this stuff and it’s refreshing to see what I believe to be all correct information and good advice so far.
The reason for this is that these accounts are tax deferred and are stepped up (no taxes) to beneficiaries. Money taken is are taxed like ordinary income and this forces some of it to be taxed before you croak. I am pretty much living off of my IRA (and soon Social Security) so I pay taxes on withdrawals every year.
As has been said, your brokerage will do the withdrawal for you but it’s a simple calculation and there are many calculators on the web so you can see what it will be year to year.
Specifically though what are the arguments to maintain “one IRA and one 401k” after retirement?
Also can you point me to a cite for the differing amounts for RMDs between IRAs and 401Ks?
All I can find in my quick search is this -
Which states -
you use the same IRS life expectancy tables to calculate the amount (see our RMD calculator)
The big differences they highlight are the bit if still working for the employer sponsor of the plan, and that qualified charitable distributions have to come from an IRA. But they don’t mention the protection bit you point out so not sure how much to trust their statements?
I thought (not sure why) that 401k assets that go to beneficiaries would be taxed as regular income to them. Because of that, I was going to spend my 401k down before I dug into other investments. (that do step up)
Someone tell me if I’m wrong. (I was going to check before actually retiring, just haven’t got there yet)
I looked it up and I was wrong about that. Sorry. I got it mixed up with the rule of not putting the IRA in a trust because of tax considerations. My very bad.
There’s a reason, whether it is a good one I suppose might be a matter of debate. Basically it derived from the enactment of pension protection in 1974 in the wake of a history of pension obligations occasionally being wiped out. A “spindthrift” provision was included to prevent the participant from alienating the funds while still working to, say, cover a debt. The side-effect per the Supreme Court was to shield it from creditors in bankruptcy. There are mostly two exceptions - a 1984 law opened them up to alimony payments and the Feds (tax liens, criminal and restitution fines ordered from violating Federal law). But to qualify under these rules (again per court findings) these plans must fall under the original 1974 law, which was specifically for employer-offered retirement programs. Pensions and 401ks are.
IRA’s however, as the name implies, were set up by filthy individuals seeking to hoard their wealth. Not good, God-fearing workers struggling under the company yoke. The fact that employers have never been required to offer retirement benefits in the first place is entirely irrelevant .
In 2005 the powers that be passed another law that was primarily concerned with making filing bankruptcy harder, adding means tests and other stuff. However it also extended bankruptcy protections to 403b and SEP IRA plans (unlimited) as well as Traditional and Roth IRAs but with a floating cash cap. Basically most IRAs generally are protected from bankruptcy these days, but most only up to a sizeable point (currently $1,711,975.00).
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