With the upcoming deadline for taking required minimum distributions from IRA and 401(k) plans for 2019, I’ve been getting questions about these RMDs and how the new Secure Act that was part of an appropriations package President Trump signed Friday could impact them. In this column I’ll answer a few.
Q: Douglas Walsh writes, “Is it possible by taking the RMD that the IRA could be depleted during one’s lifetime? That to me would be counter to good public policy.”
A: It could happen, but only in rare cases when the value of your IRA dropped so precipitously in one year that the balance fell below your required distribution, says IRA expert Ed Slott.
Under current law, once you reach age 70½, you must withdraw a minimum amount from your traditional IRAs each year. (You can always withdraw more than the minimum.)
Your required distribution for each year is calculated by taking your IRA balance at the end of the previous year and dividing it by a number related to your life expectancy. The IRS calls this number your “distribution period.”
At age 78, this number is about 20, so if your IRA balance was $100,000 at the end of the previous year, you’d have to withdraw roughly $5,000, or 5%. As you age and your remaining life expectancy dwindles, this number goes down, which means you have to withdraw a greater percentage of your account each year, even if the dollar amount shrinks. At age 100, the number is 6.3, so if you had $10,000 at that age you’d have to withdraw about $1,600, or 16%.
The lowest this number ever goes is 1.9 at age 115 and beyond, so even at that ripe old age you’d only have to withdraw about half of your IRA. The IRS never makes you withdraw 100%.
Note: These are the distribution periods for most people, If your spouse is the sole beneficiary of your IRA and he or she is more than 10 years younger than you, you’ll use different numbers.
The same minimum distribution rules apply to traditional and Roth 401(k) plans and other employer-sponsored accounts. (You don’t have to take distributions from your own Roth IRA while you’re alive.)
The only way a required distribution could deplete your IRA is if its value has collapsed since the end of the previous year.
This happened to some people who had a lot of Enron stock in their IRAs or 401(k) plans at the end of 2000, when it was around $83 per share. By the end of 2001, Enron had filed for bankruptcy and its stock was nearly worthless, but their required distribution for the year was based on the previous year’s close and exceeded what was left in their accounts.
“The IRS added a rule that said if your RMD exceeded your balance in the account, you could empty the account and we won’t hit you with a penalty” for not taking your full RMD, Slott said.
The Secure Act defers the age at which you must begin taking distributions from your own accounts to age 72 from the current 70½. It applies only to those who turn 70½ after Dec. 31.
It also changes the rules for inherited IRAs and 401(k) plans. (The life expectancy tables for inherited accounts are different than those for your own account.) For details on the Secure Act, see my see my Wednesday column at sfchronicle.com/
Q: Randi Snider asks, “Several years ago I rolled over my employer 401(k) account into a rollover IRA. I also have a pretax IRA and a Roth IRA at a different brokerage firm. When calculating the RMDs for a given year, can you combine the pretax IRAs and the rollover IRA to to see how much I should take out of the accounts? I read somewhere that a rollover IRA and pretax IRAs could not be combined for the calculations.”
A: “Technically, RMD amounts for each account are calculated separately, but the RMD for any traditional IRA can be taken from any other traditional IRA, including a Rollover IRA, SEP IRA and SIMPLE IRA,” said Jeffrey Levine, CEO of Blueprint Wealth Alliance.
Slott added that after adding up your required distributions for each IRA, you can take the total from one or combination of accounts in those IRAs, but not your Roth IRAs. Roth IRAs are not subject to RMDs during your lifetime.
You cannot take money from an IRA to satisfy a required distribution from a 401(k) or other workplace account. Also, if you have more than one 401(k) account, you must take the required distribution from each one separately; you cannot take the total from just one, like you can with IRAs.
Q: Regarding the Secure Act, Vivian Golden asks, “The age for RMD is moving to 72 instead of 70½. Does the age also change for when we are allowed to take a distribution (from a traditional IRA) and donate it directly to a charity and not owe tax on that portion of the distribution? In other words, does the direct donation have to be from an RMD in order to not owe tax on the distribution?”
A: No, you can still donate this way once you’re 70½, regardless of whether or not it counts toward your required minimum distribution, Slott said. The Secure Act didn’t change that.
Golden is talking about a qualified charitable distribution, and it’s a great way to donate once you turn 70½ because you get a tax benefit equal to or better than what you would have gotten had you donated from your checking account and taken it as an itemized deduction instead. For more information, see my columns at and
Kathleen Pender is a San Francisco Chronicle columnist. Email: [email protected] Twitter: @kathpender
