RMDs

Submitted by Anthony Zalesky on Tue, 2017-11-28 22:42

This case was in a recent Slott Report:

If you have an IRA, you should realize that what goes in must come out. In other words, your tax deferral will not last forever. Eventually, Uncle Sam will want his share. When you reach retirement age, required minimum distributions (RMDs) will kick in. Are you prepared? Take our RMD quiz and see how well you understand the basic RMD rules.
Meet Laura, a baby boomer, who is about to embark on her retirement years. This past year has been a great year for Laura. She retired from her job and she also just celebrated her 70th birthday on October 1, 2017. She has a traditional IRA and a 401(k) plan. Her older sister, JoAnn is the beneficiary of both. Can you answer the following five questions about Laura and her RMD? The correct answers can be found at the bottom of the page.

Then there was this 3rd question, which I answered C, however the answer was B:

3. To calculate her first IRA RMD, Laura must use which IRA balance?
A. December 31, 2016
B. December 31, 2017
C. December 31, 2018

Could someone elaborate on this for me? Why isn’t it C?



Submitted by David Mertz on Tue, 2017-11-28 23:19

Since Laura reached age 70 on October 1, 2017, Laura reaches age 70½ in 2018.  This makes 2018 Laura’s first RMD year.  The RMD for any given year is based on the previous year’s year-end balance, so the RMD for 2018 based Laura’s December 31, 2017 balance.   (The calculation uses the previous year’s year-end balance so that the RMD amount can be determined at the beginning of the RMD year.)  The December 31, 2018 balance will be used to determine Laura’s RMD for 2019, her second RMD year.

Submitted by Alan - IRA critic on Tue, 2017-11-28 23:20

Because the first RMD distribution year will be 2018, the year she reaches 70.5 (4/1/2018). That RMD is based on the 12/31/2017 balance. The fact that her required beginning date is 4/1/2019 does not change the amount of the 2018 RMD, it only offers an extension of time to actually take a distribution of the 2018 RMD. The 12/31/2018 balance is used to calculate the 2019 RMD which must be distributed by 12/31/2019.  Also, note that 4/1/2018 is the earliest date she could do a QCD distribution and apply it to her 2018 RMD.

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