Even Good Calculators Have Trouble With RMD Math 

When you need to check a math problem, you confidently reach for a calculator. When it comes to taking required minimum distributions from tax-advantaged retirement accounts, things aren’t so simple. 

There are nearly two dozen popular required minimum distribution calculators available online today, according to a new study from Trigg Thorstenson, founder of SimpleRMD, which provides its own calculator and tracking service. Most are adept at running the basic numbers for a single client with one tax-deferred account, but things get trickier when someone has significant wealth across multiple accounts. Guidance about RMDs is highly valued by clients, but advisors need to be double-checking their math. 

“There are no flawless RMD tools out there that eliminate the complexity in this type of planning,” Thorstenson said. “Our goal with the study isn’t to declare a winner. It’s to bring transparency and to help every tool we’ve examined, including ours, get better.”

High Stakes Math 

The stakes are high when calculating RMDs, as the IRS imposes a 25% penalty on amounts not withdrawn. But if corrected early, the penalty may be reduced to 10%. 

Where did some of the tools fall flat? 

• All passed the control scenario of tabulating RMDs for a 76-year-old with one IRA. 
• But some had trouble navigating ambiguity in the tax law created by a drafting error in the Secure 2.0 Act applying to people born in 1959. 
• IRS regulations have resolved the glitch by declaring that anyone born in 1959 must begin taking their required minimum distributions at age 73, which 10 of 21 tools acknowledged. Eleven tools were silent or could not accept the scenario. 

Other areas where problems arose included calculating RMDs on inherited IRAs and calculating RMDs when a client has a spouse who is at least 10 years younger. Just one tool in 21 aced the test (it wasn’t SimpleRMD’s own). 

Peer Review. The results of Thorstenson’s analysis resonated with Laura Varas, CEO and founder of Hearts & Wallets, which recently rebranded to H&W. “H&W has been benchmarking advice experiences since 2012,” she said. “There are many inconsistencies, as Trigg demonstrated, and across many aspects of advice and guidance.”

In one H&W review, a public retirement calculator from a major financial provider suggested that a mid-50s couple with income of $200,000 a year, $800,000 of investible assets and no debt would need to save $131,000 more a year to be “safe” for retirement. 

“It seems excessive, and what are they supposed to do to achieve that? Live under a bridge?” Varas asked. “There are no single right answers to these planning questions. Many answers can be right, depending on individual situations, and some public tools need to address potential bad answers.”