required minimum distribution

RMD at 73: What’s Up with That? 

We have noticed that the rules about IRA account withdrawals can cause some confusion, particularly among those who are getting close to the “Required Minimum Distribution” age.  

Here, we’d like to cover what the basics might mean for most people, though it is not intended to be advice or a recommendation for your specific situation. 

For traditional or rollover IRA account owners, withdrawals after age 59½ are free of penalty, but income taxes must be paid on the amounts withdrawn. One may withdraw money or not, in accordance with their needs and plans. 

But beginning at age 73, the rules change. 

For each year beginning with the year you turn 73, a “Required Minimum Distribution” (RMD) must be withdrawn: 

  • “Required” means there is no option about it—it must be done. There’s a pretty hefty penalty tax for missing it. 
  • “Minimum” means that you must withdraw at least the calculated amount, though you may withdraw more if you choose. 
  • “Distribution” is simply the word the IRS uses for withdrawals. 

The way the numbers work, the first RMD for age 73 is around 4% of the prior year-end account balance. Then, the RMD rises gradually each year. The RMD is around 5% at age 80 and around 10% by age 92.  

The withdrawals will be taxable—that is the whole object of the exercise, from the IRS’s perspective.  

Even with those requirements, IRA accounts may still have significant balances until advanced ages. 

Here are just a few fine points:  

  • The factor used to calculate the amount comes from an IRS table, and we can help check the arithmetic for you. 
  • The withdrawal may be taken any time in the calendar year. 
  • If you have multiple IRA accounts, it can get confusing. Some people consolidate and simplify their finances at this point. 

For more information, the IRS explains more details about RMDs online, available here. Please also keep in mind that different rules apply to inherited IRAs, Roth IRAs, and certain other situations, so do seek specific advice for your situation as necessary. 

And our role? We aim to help each client figure out how your money might do what you need it to do.  

So the question of how you should manage your accounts and your withdrawal strategy is best answered in a one-on-one discussion. If you would like our help talking through your situation, please call or email us. Happy to help.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. 

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Play the audio version of this post below:

RMD at Age 73! – 228Main.com Presents: The Best of Leibman Financial Services

This text is available at https://222Main.com/.

THREE LITTLE WORDS YOU MAY NEED TO KNOW: Required. Minimum. Distribution.  

If you are of a certain age and have certain retirement accounts, you probably need to know about the annually required withdrawals from those accounts. The IRS calls them “Required Minimum Distributions”—RMDs.

One special note: Clients, many of you are already treating your retirement account like an orchard, taking out the fruit crop each year to live on. The RMD is not an “extra” amount on top of the crop: it is just a minimum. If you are already taking out 5% in monthly payments to fund your retirement, you don’t need to worry about what happens at age 73.

We’ll talk about the details here, then how it works out in practice.

People born in or before 1950 with any form of retirement account (other than Roth IRA) have already begun doing this RMD process each year (or should have). People born in 1951 or later will have to begin by the year they turn 73.

Basically, the RMD needs to be calculated for each retirement account you have (except Roth IRAs). You must take out the total amount required by December 31, and you will receive a 1099-R showing taxable income.

Clients, you know we pay attention to this and strive to keep you informed about what needs to be done. But there’s one thing to be careful of: take this as an opportunity to check whether there is some account somewhere that we don’t know about, like a 401(k) from a former employer, an odd IRA balance somewhere, 457 or 403(b) plans, and so on. It happens, but it would be a pain to get yourself into some trouble over an account that’s been out of sight, out of mind.

Some people may choose to use the onset of RMDs as a time to consolidate all of their retirement funds into a single rollover IRA, to make this process simpler going forward.

One of the advantages of Roth IRAs is that they have no RMD requirement. As a matter of good planning, it may make sense to convert partial IRA balances to Roth, pay tax when you choose, and whittle down that balance that is subject to RMDs in traditional retirement accounts.

There are lots of ways to handle things! If you’d like to talk about it, we’re here for it. Email us or call.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

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RMD at Age 73: What’s Up with That?
By Mark Leibman, President

We have noticed that the rules about IRA account withdrawals can cause some confusion, particularly among those who are getting close to the “Required Minimum Distribution” age.

Here, we’d like to cover what the basics might mean for most people, though it is not intended to be advice or a recommendation for your specific situation.

For traditional or rollover IRA account owners, withdrawals after age 59½ are free of penalty, but income taxes must be paid on the amounts withdrawn. One may withdraw money or not, in accordance with their needs and plans.

But beginning at age 73, the rules change.

For each year beginning with the year you turn 73, a “Required Minimum Distribution” (RMD) must be withdrawn:

  • “Required” means there is no option about it—it must be done.
  • “Minimum” means that you must withdraw at least the calculated amount, though you may withdraw more if you choose.
  • “Distribution” is simply the word the IRS uses for withdrawals.

The way the numbers work, the RMD starts out at a little under 4% of the account balance at age 73. Then, the RMD rises gradually each year. The RMD gets to a little over 5% at age 80 and closer to 10% by age 92. The withdrawals will be taxable—that is the whole object of the exercise, from the IRS’s perspective.

Even with those requirements, IRA accounts may still have significant balances until advanced ages.

Here are just a few fine points:

  • The calculation begins with the prior year-end balance.
  • The factor used comes from an IRS table, and we can do the arithmetic for you.
  • The withdrawal may be made any time in the calendar year.
  • If you have multiple IRA accounts, it can get confusing. Some people consolidate and simplify their finances at this point.

For more information, the IRS explains more details about RMDs online, available here. Please also keep in mind that different rules apply to inherited IRAs, Roth IRAs, and certain other situations, so do seek specific advice for your situation as necessary.

As for our role, our object for each client is to help have your money do what you need it to do.

So the question of how you should manage your accounts and your withdrawal strategy is best answered in a one-on-one discussion. If you would like our help talking through your situation, please call or email us. Happy to help.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Want content like this in your inbox each week? Leave your email here.

Play the audio version of this post below:

https://anchor.fm/s/516f3a3c/podcast/rss

Three Words You May Need to Know: Required. Minimum. Distribution. 

If you are of a certain age and have certain retirement accounts, you probably need to know about the annually required withdrawals from those accounts. The IRS calls them “Required Minimum Distributions”—RMDs.

One special note: Clients, many of you are already treating your retirement account like an orchard, taking out the fruit crop each year to live on. The RMD is not an “extra” amount on top of the crop: it is just a minimum. If you are already taking out 5% in monthly payments to fund your retirement, you don’t need to worry about what happens at age 73.

We’ll talk about the details here, then how it works out in practice.

People born in or before 1950 with any form of retirement account (other than Roth IRA) have already begun doing this RMD process each year (or should have). People born in 1951 or later will have to begin by the year they turn 73.

The actual amount required is a function of age and the prior year-end balance. For example, a 73-year-old has to take out a little less than 3.8%. In round numbers, this would be $3,800 per $100,000 in the account. But that fraction goes up a little every year: 80-year-olds are closer to 5%, 90-year-olds have to take out more than 8%.

Basically, the RMD needs to be calculated for each retirement account you have (except Roth IRAs). You must take out the total amount required by December 31, and you will receive a 1099-R showing taxable income.

Clients, you know we pay attention to this and strive to keep you informed about what needs to be done. But there’s one thing to be careful of: take this as an opportunity to check whether there is some account somewhere that we don’t know about, like a 401(k) from a former employer, an odd IRA balance somewhere, 457 or 403(b) plans, and so on. It happens, but it would be a pain to get yourself into some trouble over an account that’s been out of sight, out of mind.

Some people may choose to use the onset of RMDs as a time to consolidate all of their retirement funds into a single rollover IRA, to make this process simpler going forward.

One of the advantages of Roth IRAs is that they have no RMD requirement. As a matter of good planning, it may make sense to convert partial IRA balances to Roth, pay tax when you choose, and whittle down that balance that is subject to RMDs in traditional retirement accounts.

There are lots of ways to handle things! If you’d like to talk about it, we’re here for it. Email us or call.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

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Play the audio version of this post below:

Three Words You May Need to Know: Required. Minimum. Distribution. – 228Main.com Presents: The Best of Leibman Financial Services

This text can be found at https://www.228Main.com/.

What Do I Do with All These Retirement Accounts? Some IRA Strategies and Tactics
photo shows a group of pink piggy banks on a blue surface

There is no law against having more than one retirement account. But it is possible to take this too far—and get yourself a headache down the road. Instead, we’d like to suggest some IRA strategies and tactics that may help.

One person we know is dealing with Required Minimum Distributions (or RMDs) on four accounts in different institutions. Another, recently widowed, is faced with seven sets of IRA beneficiary claim forms in order to consolidate things. And many others have to struggle to understand the overall situation because information about different accounts comes in different forms at different times.

We help by consolidating smaller accounts in various locations into a larger, central account where total values are reported each month and are available online any time. RMDs, beneficiary claims, and other administrative tasks only need to be handled one time instead of many times.

There may be an edge, too, in having an intentional investment strategy that guides all tactical decisions, based on sound principles. In our diversified portfolios, we are able to select the precise source of funds when needed from among dozens of holdings. And we know which options are at the top of our list whenever new money becomes available to invest.

We believe this is a superior approach than just putting money in or taking it out of “the market,” although we can offer no guarantees.

And none of this is to mention that the quality of our advice and perspective might be improved when we’re able to understand all the pieces of the puzzle.

At the end of the day, organizing our abundance is a pretty wonderful problem to have. Wealth seems to be more useful when we understand its meaning, what it can do for us in our real lives. So if you would like to visit about this or anything else, please email us or call.

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Play the audio version of this post below:

What Do I Do With All These Retirement Accounts? Some IRA Strategies and Tactics – 228Main.com Presents: The Best of Leibman Financial Services

This text is available at https://www.228Main.com/.

Happy Roth Year!

We’ve got Roth IRAs on the brain. Why? How would you like to never, ever pay income tax on investment gains and dividends and interest on some fraction of your money? Oh—and your beneficiaries never would either. Well?

That’s the magic of the Roth IRA, properly used.

Every single person may convert existing IRA or rollover balances into a Roth IRA, by paying income tax on the converted amount. Many believe income taxes will rise in the years ahead, above the scheduled increases in the current law.

Anyone may do a conversion of the amount they choose from existing IRA or rollover accounts, although other factors determine whether you are also eligible to contribute as much as $7,000 for 2021.

Here are some reasons that people are using this technique:

It allows folks to take advantage of the perhaps low tax brackets they are in currently: why leave the 12% or 22% or 24% bracket partly unused if you believe your tax rates will be higher in the future?

It provides a bucket for your most dynamic investments, where gains will never be taxed.

It offers balance to your retirement assets, between traditional “pay tax later” accounts and Roth “pay tax now” accounts. This reduces future RMDs (required minimum distributions) and increases your cash flow flexibility.

Like so much of life, we cannot know the future, so we simply do the best with what we do know. “A little of this, a little of that” may be a prudent way to deal with uncertainty. Future tax rates, future investment results, and your future cash flow needs are all unknown. So it might make sense to take a middle-of-the road approach—and build more flexibility into your retirement situation.

Roth conversions go by calendar year, so if you would like to talk about your options, please call or email us in the next few weeks.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

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Play the audio version of this post below:

Happy Roth Year! – 228Main.com Presents: The Best of Leibman Financial Services

This text is available at https://www.228Main.com/.

An Offer You Can’t Refuse
photo shows a cup of coffee next to a calendar

When you save money in an IRA, you get a benefit in the form of a tax deduction that reduces your liability come tax time. Unfortunately, all good things must come to an end, and these taxes are merely deferred: when you take distributions from your IRA, it gets taxed as income.

To make sure that the IRS gets its share, IRA owners are required to take out a percentage of their account value each year starting at age 72. This “required minimum distribution” (RMD) starts out around 4% and slowly grows with age according to life expectancy tables.

Beneficiary IRAs are also subject to RMDs, regardless of age. (The IRS has a vested interest in seeing that they are drained. They designed IRAs to help taxpayers fund retirement, not to sock away generational wealth with impunity.)

There has been some confusion about RMD rules in recent years because of multiple rule changes, including the requirement being waived altogether for 2020. There are no signs that Congress intends to waive RMDs for a second year, so anyone who is 72 or older by the end of 2021 will need to take out an RMD by December 31.*

No matter when your birthday is, you get complete discretion on when to take out your RMD. Some prefer to put it off as long as possible to keep the money at work in the market; some would just as soon have it in their pockets at the start of the year. It is up to you.

One notable exception for IRA holders: Roth IRAs do not have any mandatory RMDs. A Roth is funded with after-tax money, so the IRS has no interest in how you take money out or leave it in. If you are still saving up and counting down days until retirement, this is one advantage of a Roth that you should take into consideration.

Clients, if you want to talk about your RMD, please call or email us.

*Those turning 72 this year get a one-time extension and can put off their very first RMD until Tax Day next year, though we generally do not recommend this: these folks will still need to take 2022’s RMD out by the end of next year, so doubling up on distributions will create a lumpy tax bill.

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A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Rule Change: IRA Required Distributions

canstockphoto45286234

Legislation intended to ameliorate the effects of the COVID-19 pandemic changed the rules on IRA required minimum distributions.

The SECURE Act passed in December 2019 changed the beginning date for required distributions to the year after you turn 72. This applies to people who turn 70 and a half after last December 31st. Otherwise the old rule applies.

However, the CARES act signed in March wipes out any required minimum distribution for 2020. IRA owners may still take distributions at their option, but the Required Minimum Distribution does not apply. Taken together, these laws give IRA owners new flexibility.

Your personal situation may be affected by these changes. Your cash flow strategy, Roth conversion strategy, or tax strategy may need additional thought. Or you may want to revisit your retirement account investment strategy. Retirement accounts may be a significant portion of invested assets.

Bottom line: clients, if you would like to talk about how these changes affect you, please call or email us.