Our Thoughts

RMDs….Clinton, Trump, and Me

I (Marjorie Fox) have just turned 70 and will be turning 70 ½ in 2017. Presidents Donald Trump and Bill Clinton turned 70 in 2016. They were both born in 1946 and are in the first group of baby boomers to be subject to the age 70 ½ required minimum distribution (RMD) rules, assuming, of course, they both have IRAs. Mr. Trump was born on June 14, 1946 and Mr. Clinton on August 19, 1946, just two months apart. But like their politics, even the IRA RMD rules apply differently to each of them. And, they apply differently to me.

TURNING 70 ½. Mr. Trump turned 70 ½ in 2016, but Mr. Clinton turned 70 ½ in 2017, so they each have a different required beginning date (RBD). The RBD is April 1 of the year following the year a person turns 70 ½, and is the deadline for making the first required minimum distribution. Mr. Trump’s RBD is April 1, 2017 and Mr. Clinton’s is April 1, 2018. My RBD, like Mr. Clinton’s, is April 1, 2018.

Even calculating the first RMD will be different for Mr. Trump, Mr. Clinton, and me. Mr. Trump will calculate his first RMD using his IRA balance on Dec. 31, 2015 since he turned 70 ½ in 2016. Mr. Clinton and I will use Dec. 31, 2016, since we turn age 70 ½ in 2017.

LIFE EXPECTANCY TABLES. The life expectancy factors the three of us will use will be different as well. We will even use different IRS tables to calculate them. Assuming Mr. Trump’s beneficiary is his wife, he can use the Joint Life Expectancy Table, since she is more than 10 years younger than he is.

Mrs. Trump was born on April 26, 1970, so in 2016, the year Mr. Trump turned 70 ½, she was 46 years old and he was 70. Mr. Trump can use the Joint Life Expectancy Table, from IRS Publication 590-B, and look up the joint life expectancy for a 70 and a 46-year old. That would give him a factor of 38.6 years. He would divide his Dec. 31, 2015 IRA balance by 38.6 to arrive at his first RMD. The following year he would go back to the Joint Life Expectancy Table and use ages 71 and 47, and so on for each succeeding year

Mr. Clinton, on the other hand, would use the more traditional table, regardless of whom he names as his IRA beneficiary. The Joint Life Expectancy Table exception only applies when a spouse who is more than 10 years younger is the beneficiary. Mr. Clinton would use the Uniform Lifetime Table and look up the factor for age 71, since unlike Mr. Trump, Mr. Clinton turns 71 in the year he turns 70 ½. That factor is 26.5 years, as opposed to the 38.6 years Mr. Trump can use. I, too, will use the Uniform Lifetime Table. But, unlike Mr. Clinton, I will look up the factor for age 70, since I am 70 in the year I turn 70 ½. That factor is 27.4, compared to the 26.5 that Mr. Clinton is using.

ILLUSTRATION. Let’s assume that the three of us each have $1 million as our IRA balance in our respective calculation years. Mr. Trump’s first RMD will be $25,907 ($1 million / 38.6 years = $25,907). Mr. Clinton’s first RMD will be $37,736 ($1 million / 26.5 years = $37,736). And, my first RMD will be $36,496.

Even though they are only two months apart in age, Mr. Trump’s first RMD is $11,829 lower than Mr. Clinton’s, not only because they turned age 70 ½ in different years, but also because Mr. Trump qualified to use the Joint Life Expectancy Table since his spouse beneficiary was more than 10 years younger. Mr. Trump saves $11,829 and wins again. And my first RMD will be $1,240 lower than Mr. Clinton’s because I turned 70 in 2017 while he turned 71.

But even if Mr. Trump named someone besides his wife as his IRA beneficiary and had to use the same Uniform Lifetime Table as Mr. Clinton, Mr. Trump would still benefit. That’s because he turned 70 in the year he turned 70 ½ so he can use age 70 from the table, while Mr. Clinton must use age 71, since he turns 71 in the year he turned 70 ½ .

IRA CONTRIBUTIONS. Mr. Clinton and I have an advantage here, but only for 2016. Mr. Clinton and I could have made traditional IRA contributions for 2016, up to April 15, 2017, since we did not turn 70 ½ until 2017. Mr. Trump could not, since he turned age 70 ½ in 2016. Traditional IRA contributions can no longer be made for the year a person turns age 70 ½ or older.

Source: Ed Slott, “Trump vs. Clinton: Same age, varied IRA rules,” Investment News, March 27, 2017. Mr. Slott is a certified public accountant who created the IRA Leadership Program and Ed Slott’s Elite IRA Advisor Group.