Mental Block Questions

[steelpony10]

        I know I should know this and probably did at one time.

        An acquaintance at the gym today asked this and I drew a blank:

        If you have a 20k RMD from a traditional IRA and you withhold 2k for taxes does the 18k you receive plus the 2k withheld satisfy the RMD?  I couldn’t find a definitive answer on the net after a quick check while I took a break from my workout. 

         

         

        

         

[yogibearbull]

RMD is 20K. $2K withheld is for taxes.
If "don't withhold" option is available, then you get $20K but must send some estimated taxes soon - unless you are using a safe-harbor method..
So, withholding is for convenience.

[liftlock]

Mar 7, 2024 22:19:18 GMT steelpony10 said:

        I know I should know this and probably did at one time.

        An acquaintance at the gym today asked this and I drew a blank:

        If you have a 20k RMD from a traditional IRA and you withhold 2k for taxes does the 18k you receive plus the 2k withheld satisfy the RMD?  I couldn’t find a definitive answer on the net after a quick check while I took a break from my workout. 

yes.  I always do separate transactions for withdrawals and for tax withholding to avoid any confusion. 

[steelpony10]

yogibearbull ,liftlock ,

      Thanks. 

       That’s what I understand. I just didn’t want to give out bad info. I never took out the exact amount.

       As an aside I saw 80% of retirees take out more then the RMD so some are considering dropping RMD’s completely for simplification, leaving a taxable and tax free IRA.

[Mustang]

Mar 7, 2024 22:19:18 GMT steelpony10 said:

        I know I should know this and probably did at one time.

        An acquaintance at the gym today asked this and I drew a blank:

        If you have a 20k RMD from a traditional IRA and you withhold 2k for taxes does the 18k you receive plus the 2k withheld satisfy the RMD?  I couldn’t find a definitive answer on the net after a quick check while I took a break from my workout. 

Yes, as long as 20k is reported on the 1099-R.  I have three monthly distributions: one is to the federal government for federal income taxes. One is to the state for state income taxes and the last is to me.  In your example, 20k would be reported in block 1 (gross income) and block 2a (taxable income) of the 1099.  2k would be reported in block 4 (federal withholding), block 14 (state withholding) or divided between the two.  If too much is deducted for taxes then the retiree will get a refund on his tax return.

I have the mutual fund company handle all of this and I get a refund every year.

[mnfish]

steelpony10, " some are considering dropping RMD’s completely for simplification, leaving a taxable and tax free IRA"

If it's a "Required" distribution, how can you drop it?

[steelpony10]

Mustang ,

        I was a volunteer tax preparer for AARP for years. Sorta embarrassing to admit I blanked out on that question.

         I filled in that section many times, 100’s. and we all acted as checkers on each others entries. I would never know without looking at the final printout how that worked out and I suspect most took out more then the RMD. It was a separate entry as you pointed out.

[steelpony10]

mnfish ,

    RMD is a calculating nightmare with big penalties if you a do it yourself. Apparently reading government committee notes the money starved government figures removing the calculation and penalties would encourage quicker withdrawals and tax collection from a big portion of the current population.

     The taxable TIRA and Tax free Roth would be left. Following the pattern of kicking the can down the road a faster phase out of the TIRA leaves just the Roth and increased tax revenue over a longer time leaving the tax burden to younger generations. It’s not unlike SS.

[mnfish]

Mar 8, 2024 13:34:17 GMT steelpony10 said:

mnfish ,

    RMD is a calculating nightmare with big penalties if you a do it yourself. Apparently reading government committee notes the money starved government figures removing the calculation and penalties would encourage quicker withdrawals and tax collection from a big portion of the current population.

     The taxable TIRA and Tax free Roth would be left. Following the pattern of kicking the can down the road a faster phase out of the TIRA leaves just the Roth and increased tax revenue over a longer time leaving the tax burden to younger generations. It’s not unlike SS.

According to a Forbes article, the reason for eliminating the RMDs (for some) is that after the IRA holder passes the assets generally must be withdrawn in 10 years, unless a spouse. Obama admin had proposed eliminating RMDs for those with less than $100k. 

[steelpony10]

mnfish ,

      I was unfamiliar with that. My info came out of a Fed IRA reform committee

      I always wondered what was the break even point for Roth conversions including lost revenue from the prepaid taxes. The stick end of the carrot.

[marg]

Will the Brokerage company like Vanguard, or Wells Fargo calculate the withholding tax for you if you ask them? do they ask your tax bracket?  Thanks

[kent]

Mar 8, 2024 21:01:04 GMT marg said:

Will the Brokerage company like Vanguard, or Wells Fargo calculate the withholding tax for you if you ask them? do they ask your tax bracket?  Thanks

I think it would be hard for Vanguard/ Wells Fargo to know what Bracket you are in as they are not aware what other income you have. You will need to get all your income from all sources and calculate what bracket you are in. Once you know what bracket you are in then you can ask the % withholdings. There are many free sites that would let you put in your numbers.

[Chahta]

Mar 7, 2024 22:19:18 GMT steelpony10 said:

        I know I should know this and probably did at one time.

        An acquaintance at the gym today asked this and I drew a blank:

        If you have a 20k RMD from a traditional IRA and you withhold 2k for taxes does the 18k you receive plus the 2k withheld satisfy the RMD?  I couldn’t find a definitive answer on the net after a quick check while I took a break from my workout. 

         

         

        

         

Of course, the 18+2 satisfies the RMD. The IRS doesn't care how you use the money, as long as 20 leaves the IRA.

[Capital]

Just think of it this way. Receiving $18k and having $2k withheld is no different from receiving $20k and then paying $2k estimated tax. In the first instance the 1099-R will show $20k of income and $2k FIT withheld. In the second I Instance the 1099-R will still show $20k of income but no FIT withheld. However your return would show the $2k estimated payment. That said there is the way that the Under payment penalty is calculated; but, other than that, both methods leave you in the same situation.

[marg]

But if I decide to do a QCD 20K, then no need to pay estimated tax or FIT. 20k goes to itemize deductions form, correct? thanks

[steelpony10]

marg ,

     Read Chahta ,s comment above. That was the correct answer in plain english. You are correct, you can give it away. I’m not sure on the limits if any.

     I gift 2 children now. My standard deduction is 30k+ so I don’t itemize. If I’m ever a sole survivor I may start gifting way more to many people and organizations. I’d like to limit what a LTC facility might get and can live fine on much less.

[yogibearbull]

Mar 14, 2024 13:32:30 GMT marg said:

But if I decide to do a QCD 20K, then no need to pay estimated tax or FIT. 20k goes to itemize deductions form, correct? thanks

Beauty of QCD is that it doesn't flow through your income. QCD can start at 70, and then after 72, it can be part of your RMD (so, you pay tax only on RMD - QCD).

If you took QCD out of your T-IRA and then try to gift it, you will have taxable income and would have to file Schedule A for itemized deductions, but many now take standard deductions.

So, QCD is a very powerful tool for charitably inclined. The other tool is DAF.

[flipperxxx]

Mar 14, 2024 15:54:06 GMT steelpony10 said:

marg ,

     Read Chahta ,s comment above. That was the correct answer in plain english. You are correct, you can give it away. I’m not sure on the limits if any.

     I gift 2 children now. My standard deduction is 30k+ so I don’t itemize. If I’m ever a sole survivor I may start gifting way more to many people and organizations. I’d like to limit what a LTC facility might get and can live fine on much less.

  the idea of LTC getting my wee pile often keeps me up at night.  a few years back, an exgirlfriend of mine was in deep trouble, so i paid off her mortgage to keep her from the horror of being homeless.  it was way way way over what you're allowed to give, i think, but i just did it, because i really had no choice.  so, it was a gift.  but then she decided to pay me back during a refi, so then i guess it became a loan, which you're not allowed to do without collecting interest, but i shrugged that away, too.  (refi got her back in trouble but that's a whole 'nother story.)

  anyway, my point is, if i gave my ex a bunch why couldn't i just slip my daughter all my non-IRA savings right now, to foil LTC?  i wonder what happens if they come after you.  i also wonder if it would be morally wrong to do such a thing.

[yogibearbull]

flipperxxx , beyond the annual gift limit, complicated Gift Form 709 is required although no tax is due.

Medicaid look back period is 5 years. So, if you gift all during that period, Medicare won't buy it. But many do use this to plan early.

[marg]

I realized that the more I make from investments, the greater the problem will become later on. so I leave money in MM account or T bills.

[gman57]

I'm thinking my wife's LTC is what we saved if needed and my LTC is in my house equity. Not looking forward to either. That 5 year look back is a gotcha, I gave my kids a large chunk of money to hold for us if needed BUT wound up giving it to them the over the last 5+ xmas's. My fault I know, but WTH :^) ;^) Maybe karma will take care of us?

[anitya]

I knew some one who and whose siblings were all rich but their immigrant parents were poor and lived with the siblings.  When the time came, I remember their mother received long term care and stayed in a nursing home paid for by the State when she could not care for herself (also some neurological condition like dementia or Alzheimer's). I think she never had any official earnings to have paid into Social Security and Medicare. If you paid into Social Security and Medicare during earning years, does Medicare pay for these services if you do not have money of your own?

I looked at Medicare website to see what is covered and to my eye it does not seem straightforward. At what point do you decide that your mental capabilities have declined enough that you need to avail these services or does someone else make those decisions for you?

www.medicare.gov/what-medicare-covers/what-part-a-covers

[yogibearbull]

anitya , that would be Medicaid.

Medicaid is the social support program that covers poor (low income & assets) who are US citizens or permanent residents (after an initial blackout period), and resident of a State.

I am familiar with the cases you mentioned. In the US, adult children don't have the responsibility to support their parents (it works the other way too). So, many use loopholes to show that their parents are pauper even when living with them in multimillion dollar palaces.

One extreme case was a local MD who went through lot of headaches to get his parents on Medicare. He also started a senior assisted care business (a chain now) so that his parents could live there comfortably, and he could serve as the resident MD of the facility. I suppose some good came out of that because that facility served many others too, including several of our friends who need such care.

Few years ago, the US Senators Carol Mosley Braun (from IL) was caught in a scandal of initially claiming Medicaid for her mother, but after lots of negative publicity, paid back the Medicaid for the services it provided.

So, even the rich and powerful take advantage of the loopholes of these programs that were designed to care for the truly needy.

[steelpony10]

flipperxxx ,

        I managed my parents assets (both sets) up to 35 years. I learned on the run and am not current on the present laws etc. after 2017.

         There are many steps leading up to LTC. Most retirees don’t make it to that final step which lasts on average 3 years. Independent living and assisted living are out of your pocket, healthcare premiums still need to be paid along with copays the whole route.

          If it’s a concern there are elder care attorneys to set everything up within the law. I did not use one. The smartest 2 things I did was set up a funeral trust (prepaid funerals for all in our immediate family which was money off the books) My mother used this money for anything after my dad passed. The second thing I did was choose a facility that accepts medicaid when a client runs out of money while in skilled nursing (LTC only). Treatment is palliative by then but she didn’t end up in the first available bed on skid row. I think the look back was 5 years for dispersing money out of an account then. Once in my mom still gifted small amounts. 

           Morality is personal. I took full advantage of all present laws at the time and probably missed some. In the end I rolled her final 9k into my own trust. 

[anitya]

yogibearbull , Sorry if my post came across as complaining about rich people taking advantage of the system. That was not my intent. I had two questions in my post if anyone is willing to answer. I think steelpony10  and you may have touched on those but by not being familiar with the subject matter, I did not see the answers to my questions. Assume I will live alone leading up to the time of necessary decisions.

you may have answered the first question of running out of money -Medicaid.

May be someone can recommend a book on these matters. 

[fishingrod]

Mar 15, 2024 16:38:57 GMT anitya said:

yogibearbull , Sorry if my post came across as complaining about rich people taking advantage of the system. That was not my intent. I had two questions in my post if anyone is willing to answer. I think steelpony10  and you may have touched on those but by not being familiar with the subject matter, I did not see the answers to my questions. Assume I will live alone leading up to the time of necessary decisions.

you may have answered the first question of running out of money -Medicaid.

May be someone can recommend a book on these matters. 

"While there is no perfect solution to the problem of making medical decisions for such vulnerable patients, 3 different approaches are noted in the literature: a physician approach, an ethics committee approach, and a guardianship approach."

journalofethics.ama-assn.org/article/who-makes-decisions-incapacitated-patients-who-have-no-surrogate-or-advance-directive/2019-07

Advanced Medical Directives are very important and helpful at this point.

[liftlock]

Mar 14, 2024 16:03:29 GMT yogibearbull said:

Mar 14, 2024 13:32:30 GMT marg said:

But if I decide to do a QCD 20K, then no need to pay estimated tax or FIT. 20k goes to itemize deductions form, correct? thanks

Beauty of QCD is that it doesn't flow through your income. QCD can start at 70, and then after 72, it can be part of your RMD (so, you pay tax only on RMD - QCD).

If you took QCD out of your T-IRA and then try to gift it, you will have taxable income and would have to file Schedule A for itemized deductions, but many now take standard deductions.

So, QCD is a very powerful tool for charitably inclined. The other tool is DAF.

Gross IRA distributions are reported to taxpayers by their IRA custodian on IRS Form 1099-R.   The gross distribution amount reported includes QCDs.  On a tax return, gross IRA distributions are reported on Form 1040 line 4a - IRA Distributions.  QCDs are then subtracted from the gross IRA distribution amount to determine the taxable IRA distribution amount reported on Line 4b.  The line 4b. taxable IRA distribution amount excludes QCDs and gets included in the taxpayers Adjusted Gross Income.  QCDs directly reduce Adjusted Gross Income (AGI) and are excluded when calculating Medicare IRMAA premium surcharges for higher income taxpayers based on their MAGI - Modified AGI.

QCDs are not reported as an itemized deductions on Schedule A.   Standard and Itemized deductions reduce Taxable Income but not AGI.  QCDs reduce AGI, taxable income and the $ threshold for claiming an itemized deduction for large medical expenses exceeding 7.5% of AGI on Schedule A.

www.irs.gov/pub/irs-pdf/f1040s.pdf

The annual QCD limit is indexed for inflation and is $105,000 for 2024.
 

[marg]

liftlock,yogibearbull, Thank you , very well explained. 

[anitya]

I think QCDs are good for the society, given the decrease in charitable contributions after the government created a backhanded disincentive to take an itemized deduction.  I might stop giving to charity and wait until I become eligible to do QCD. With standard deduction being indexed and the strict $10K state income and property tax limit (for single), some of the charitable contributions do not get a tax deduction (diff between standard deduction and the $10K limit). I tried to pool a couple of years' charitable giving into a single year but still the leakage is irritating. QCD is better in so many ways, as liftlock explained. I name a charity as a beneficiary of my IRA anyway.