How to figure this RMD calculation?

Submitted by Gary Robbins on Fri, 2019-09-27 16:09

Hello all.
Just joined the forum.
Here goes: I made an excess contribution to an IRA for 2018. I corrected the excess in 2019 and paid a horrible tax penalty for 2018. But that’s water in the bridge.
My question is how do I figure my RMD for 2019? Is it on the December 31st 2018 balance of my IRA accounts, which included the excess contribution? Or do I make some adjustment for 2019?
I have more than covered the 2018 RMD either way.
Any input is appreciated.
Gary



Submitted by Alan - IRA critic on Fri, 2019-09-27 17:16

  • Welcome to the discusssion forum.  Not sure what type of tax penalty you are referring to. If you removed the excess contribution with allocated earnings there would be no 6% excise tax, but you would owe taxes on the earnings. Or perhaps you mean that you were not able to take a deduction for the contribution because you had reached 70.5 in 2018? It comes down to exactly how you corrected the excess.
  • The actual 12/31/2018 balance in your IRA, including any excess contributions, is used to determine the 2019 RMD. But even though you withdraw such excess contributions with their earnings in 2019, that distribution does NOT count toward meeting the 2019 RMD. In other words, both of these situations are adverse to the IRA owner. Effectively, your RMD went up because the account held excess contributions, possibly for any number of years. That would be viewed as another version of a penalty.


Submitted by Gary Robbins on Fri, 2019-09-27 21:10

Thank you so much for your quick response. It was extremely useful.As for the penalty I referred to, I used the incorrect word. The excess contribution goof resulted in me having to pay taxes on much higher earnings (and at a higher rate) than I would have had to otherwise for 2018. Of course you are correct that I now have to take a higher RMD for 2019. It was of one of those mistakes that just keeps on giving. I wish I would have found the forum a  year ago 🙂 Again thank you.Gary



Submitted by Gary Robbins on Sat, 2019-09-28 16:43

Well Alan you were so helpful regarding my last question. One more quick one. It may sound like a stupid question, because RMDs are there to tax the amount in in your IRA. But, do the taxes withheld from an RMD count toward the total RMD requirement for the year?



Submitted by Alan - IRA critic on Sat, 2019-09-28 17:13

Yes, the withholding counts toward your RMD since it was distributed from the IRA and is part of the income you must report. It is included in Box 1 of the 1099R. Once RMDs begin, many people use withholding to replace the need for paying quarterly estimates, but of course the RMD must be large enough in relation to your other taxable income for this to be a total solution.



Submitted by Gary Robbins on Sun, 2019-09-29 14:34

Many thanks Alan. I will attempt to pay your helpful good deeds  forward.Gary



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