A Couple of Tax Questions

[Bali Hai Again]

What is the name of your state? New York

Background: I was pleasantly surprised to learn that I qualified for the “Retirement Savers Contributions Credit” in 2023 (RSCC). I also have a small amount of long term Capital loss (less than $3000) in 2023. I am subject to RMD in 2024.

Question 1: Using the tax software I find that if I take the 2024 RMD “before” April 15, 2024, it wipes out the 2023 RSCC for 2023. The government requires the 2024 RMD but then penalizes someone for taking it? Am I missing something important here?

Question 2: The tax software will not let me carryover the Capital loss into the future. Does the Capital loss need to be more than 3k to do this?

As always, thank you in advance for any input.

 

[adjusterjack]

Question 1: Using the tax software I find that if I take the 2024 RMD “before” April 15, 2024, it wipes out the 2023 RSCC for 2023. The government requires the 2024 RMD but then penalizes someone for taking it? Am I missing something important here?

The government needs the money. LOL.

Question 2: The tax software will not let me carryover the Capital loss into the future. Does the Capital loss need to be more than 3k to do this?

Do the tax forms with pen and paper following instructions in the booklet.

 

[Bali Hai Again]

Do the tax forms with pen and paper following instructions in the booklet.

if I did that, things would surely get messed up. Besides, that’s not the green way.

 

[Taxing Matters]

What is the name of your state? New York

Background: I was pleasantly surprised to learn that I qualified for the “Retirement Savers Contributions Credit” in 2023 (RSCC). I also have a small amount of long term Capital loss (less than $3000) in 2023. I am subject to RMD in 2024.

Question 1: Using the tax software I find that if I take the 2024 RMD “before” April 15, 2024, it wipes out the 2023 RSCC for 2023. The government requires the 2024 RMD but then penalizes someone for taking it? Am I missing something important here?

What is the first year of your RMD? You may take that as late as April 1 of the the following year. So if 2023 was your first year for a RMD then you have until April 1 to do it. And that increased income would affect the credit. That may be what your software is doing, treating that RMD as being for 2023, not 2024. You have to be very careful in answering the software prompts to avoid this kind of error.

Question 2: The tax software will not let me carryover the Capital loss into the future. Does the Capital loss need to be more than 3k to do this?

You may use the first $3,000 of capital loss that exceeds your capital gains as a deduction from ordinary income. The amount above that is carried forward. Look at the return the softwared did; it likely gave you a deduction for part of the loss against your ordinary income for this year.

 

[Bali Hai Again]

Thank you TM.

Q1: The first year of RMD is 2024. I am aware that it must be taken no later than April 1, 2025, but I don’t want to do that. RMD for 2023 is not required. The tax software seems to know that.

Q2: The software gave the entire loss as a deduction for 2023. I was under the assumption that any loss of any amount could be carried into future years. It appears if the loss is less than 3k there is no option to carryover and must be used in the tax year that the loss occurred.

 

[LdiJ]

What is the name of your state? New York

Background: I was pleasantly surprised to learn that I qualified for the “Retirement Savers Contributions Credit” in 2023 (RSCC). I also have a small amount of long term Capital loss (less than $3000) in 2023. I am subject to RMD in 2024.

Question 1: Using the tax software I find that if I take the 2024 RMD “before” April 15, 2024, it wipes out the 2023 RSCC for 2023. The government requires the 2024 RMD but then penalizes someone for taking it? Am I missing something important here?

If its a 2024 RMD, why are you addressing it at all on your 2023 tax return? You shouldn't be imputting anything on that return that is a 2024 item.

Question 2: The tax software will not let me carryover the Capital loss into the future. Does the Capital loss need to be more than 3k to do this?

As always, thank you in advance for any input.

Capital losses get taken against capital gains in the same year. If there are no capital gains to take the losses against then up to $3000 can be taken against ordinary income and any remainder will be carried forward to be taken against future capital gains or if no future capital gains then an annual amount of $3000 against ordinary income until the loss is used up. You don't get choices.

 

[Bali Hai Again]

If its a 2024 RMD, why are you addressing it at all on your 2023 tax return? You shouldn't be imputting anything on that return that is a 2024 item.

The 2023 return asks how much retirement withdrawal I will make in 2024 in the “Retirement Saver Credit“ section. Otherwise I would not enter anything for the RMD withdrawal in 2024. Again this question is on the 2023 return for 2024. Should I ignore the question, leave it blank and just make the withdrawal?

 

[Bali Hai Again]

Capital losses get taken against capital gains in the same year. If there are no capital gains to take the losses against then up to $3000 can be taken against ordinary income and any remainder will be carried forward to be taken against future capital gains or if no future capital gains then an annual amount of $3000 against ordinary income until the loss is used up. You don't get choices.

I’m getting the picture on that now.

 

[LdiJ]

Bali, it is asking how much of a withdrawal you will make in 2024 for 2023. Not how much of a withdrawal that you will make in 2024 for 2024.

This is why I don't like online software. Nobody reads the instructions anymore and it's too easy to misinterpret a question asked by the software.

 

[Bali Hai Again]

Bali, it is asking how much of a withdrawal you will make in 2024 for 2023. Not how much of a withdrawal that you will make in 2024 for 2024.

This is why I don't like online software. Nobody reads the instructions anymore and it's too easy to misinterpret a question asked by the software.

Thank you LdiJ.

Is there an example of how one can make a withdrawal in 2024 and assign the withdrawal to 2023? Also, Form 8880 Line 4 seems to indicate 2024 withdrawals (before April 15, 2024 if no extensions) are counted for this credit in 2023.

I am not trying to be difficult, just trying to understand the rationale.

 

[LdiJ]

Thank you LdiJ.

Is there an example of how one can make a withdrawal in 2024 and assign the withdrawal to 2023? Also, Form 8880 Line 4 seems to indicate 2024 withdrawals (before April 15, 2024 if no extensions) are counted for this credit in 2023.

I am not trying to be difficult, just trying to understand the rationale.

Ok, a person is allowed to make a withdrawal for the first year that they are required to do an RMD in the first quarter of the following calendar year. It is a one time deal that applies to your first RMD only. I suppose that the rationale (other than simply that Congress wrote the law that way) is to give people a break on doing their first RMD, in case they mess it up. Congress makes lots of laws regarding taxes that don't necessarily make sense.

It is still taxable in the year that it is actually withdrawn, but it counts as the RMD for the year it was supposed to have been withdrawn. If you are not supposed to make an RMD for 2023, then you would not have any withdrawal in 2024 that would impact 2023 taxes in any manner. As far as how you do it? You simply fill out whatever paperwork the payor requires to make it so.

Line 4, and the instructions, are worded rather poorly. Basically, if you took withdrawals from a retirement plan in the three years prior to the current year, plus the current year (which includes the first quarter of the following year if its your first RMD and you take it in that quarter), it impacts the Retirement Saver's Credit. Line 4 cares about past and current year withdrawals, not withdrawals that are for future years.

 

[Bali Hai Again]

Ok, a person is allowed to make a withdrawal for the first year that they are required to do an RMD in the first quarter of the following calendar year. It is a one time deal that applies to your first RMD only. I suppose that the rationale (other than simply that Congress wrote the law that way) is to give people a break on doing their first RMD, in case they mess it up. Congress makes lots of laws regarding taxes that don't necessarily make sense.

It is still taxable in the year that it is actually withdrawn, but it counts as the RMD for the year it was supposed to have been withdrawn. If you are not supposed to make an RMD for 2023, then you would not have any withdrawal in 2024 that would impact 2023 taxes in any manner. As far as how you do it? You simply fill out whatever paperwork the payor requires to make it so.

Line 4, and the instructions, are worded rather poorly. Basically, if you took withdrawals from a retirement plan in the three years prior to the current year, plus the current year (which includes the first quarter of the following year if its your first RMD and you take it in that quarter), it impacts the Retirement Saver's Credit. Line 4 cares about past and current year withdrawals, not withdrawals that are for future years.

To summarize, if I withdraw my 2024 RMD in the first quarter of 2024, I lose some or all of the 2023 Retirement Saver’s Credit. And the 2024 RMD withdrawal must be reported on the 2023 tax return to calculate the credit, but is taxed in 2024.

 

[LdiJ]

To summarize, if I withdraw my 2024 RMD in the first quarter of 2024, I lose some or all of the 2023 Retirement Saver’s Credit. And the 2024 RMD withdrawal must be reported on the 2023 tax return to calculate the credit, but is taxed in 2024.

No.

If you take your 2024 RMD at any time in 2024 it counts for 2024 in all ways and does not impact 2023 at all. Your summary would only be correct if we were talking about a first time RMD for 2023, taken in 2024.

But hey, feel free to discuss it with a local tax professional.

 

[Bali Hai Again]

No.

If you take your 2024 RMD at any time in 2024 it counts for 2024 in all ways and does not impact 2023 at all. Your summary would only be correct if we were talking about a first time RMD for 2023, taken in 2024.

But hey, feel free to discuss it with a local tax professional.

Thank you. You have been very helpful LdiJ.