For those of you who are in your retirement years or approaching the all-important age, 70 ½ here are some helpful tips concerning certain retirement accounts. With the exception of ROTH Individual Retirement Accounts there are requirements that state you must begin taking Required Minimum Disbursements or RMD’s by age 70 ½. This means you or your Certified Financial Consultant needs to have some key information available to calculate what your RMD will be.
Exceptions for RMD’s
First, all retirement accounts with the exception of ROTH IRA’s and a current 401(k) or 403(b) where you are over age 70 ½ and still working require an RMD or you can face some stiff penalties. Since ROTH IRAs are funded with pre-tax dollars the government is not as concerned about you making your RMD’s, but they will ensure that your beneficiary does start making them after your death based on their life expectancy. In the case you are over age 70 ½ and still working you are eligible to continue to defer your RMD and even continue to make annual contributions. But once you terminate your employment you must start making your RMD’s or face the same stiff penalties.
All other retirement accounts will require that you make RMD’s from a combination of all your accounts or enough from a single account to cover the RMD.
When RMD’s Start
As alluded to earlier, you must begin making your RMD’s at age 70 ½ and here is how that is determined as you will technically have until April 1st of the year after you turn this magical age. So, I will turn 70 at some point in the future on January 17th, meaning I will have until April 1st of the following year to make my first RMD as I will be 70 ½ in July of that year. But if your 70th birthday is in June you will only have until the following April 1st to make your RMD from your accounts as you turned 70 ½ in December. To be on the safe side it may be wise to establish an RMD date between January and March for your RMD’s so you will always be in compliance with the April 1st deadline for your first RMD.
After your initial RMD, you can make the successive RMD’s any time during the year up to December 31st. If you have a workplace retirement plan, all you will need to do is inform the asset management company how much you wish to withdrawal, and they will liquidate a portion of your assets to meet the requirements. If you have an IRA you have some more flexibility to sell certain assets that are higher in value than others and make more strategic withdrawals of your assets. This way you can select what asset you wish to sell to make up your RMD.
Calculating Your RMD
When it comes time to calculate your RMD, there are several options, but the key is to have all the relevant information that is required to do so. First, you can obtain your life expectancy from the IRS website and always use their figure for this as to avoid making an under withdrawal on your RMD. If you do not make a sufficient withdrawal you can face a 50% penalty tax on any under withdrawn amount, and there is no excuse for that. If you think you may need assistance always seek the advice of a tax professional or a Registered Financial Consultant. The second valuable piece of information you need is the balances of all of your similar accounts to know what your base is for your RMD. If you have Traditional IRA’s you need all of their balances as of December 31st, and the same is true for any workplace retirement accounts as well. Remember, you do not need to make withdrawals from all of the accounts, just the RMD from one or any of the similar accounts you have.
If you need help, there are numerous websites that have RMD calculators provided you can supply the two basic bits of information. Then all you need to do is plug the information into the calculator, and it will give you your RMD for the year. Then ensure you make the withdrawal before either April 1st or December 31st to avoid any potential penalties.
If you need assistance in making your RMD’s or how to best go about doing them, consult a fee-only Registered Financial Consultant. And as always, if you have any questions feel free to contact me directly or leave a message here.
