Required Minimum Distribution (RMD) Part Two: Techniques … Should You Take Your First RMD Early ? … Maybe

In our continuing three part series on RMD (Required Minimum Distributions) started last week here, this week we discuss a few more complicated techniques and items.

RMD Distribution Technique

While the IRS mandates our RMD amount each year (click here for RMD Calculator) they do allow us the option of  lumping our various accounts together and only taking a distribution from one account if desired.

Withdraw from your most liquid and keep your best earning IRA while avoiding any withdrawal penalties may be a possibility by directing your TOTAL distribution from just one IRA. Do not forget to add them all together as that number is what the IRS wants to see us take our distributions based upon.

Keep Up With After Tax Contributions

If you have any after tax contributions in any of your qualified/IRA/RMD accounts be sure to keep up with the basis. Withdrawals from a taxable RMD account are taxed pro-rata and will not be taxed on your after tax basis. Check with your tax professional, but this basis should also be showing up on form 8606 EVERY YEAR in your tax return.

Taking Your Frist RMD Early

Uncle Sam gives us first time RMD ‘ers a break and allows that you take your first RMD as late as April of the following year.  Ahhh ….. but there is a catch, if you wait/defer your first RMD, you will be faced with TWO RMD’s in this tax year. Every situation is different, so choose carefully, but be aware if you delay the max you will double up!

These are not recommendations as there are many moving parts when it comes to RMD’s. No matter what, do not forget your obligation to take your RMD and know there are multiple items you may want to consider when taking.

Have a Great Day!

John Kvale CFA, CFP