Question:
Mom is in an assisted living facility turning 70 this year. Because of her health, she has asked me to help her coordinate her RMD. I think she’s drawn on her retirement accounts before, but she says now she has to. I don’t think she needs the money. Can you tell me what accounts and what I need to do? I don’t want to sound ignorant when I start making calls.
Answer:
If you have tax-deferred retirement accounts, the IRS wants you to pay the taxes. Therefore, they require you to withdraw a percentage of your assets once you turn 70½. Your mandatory withdrawal is your balance as of December 31 of the prior year, divided by a life expectancy factor. The factor is found on tables published by the IRS—the Joint and Last Survivor Table, Uniform Lifetime Table or the Single Life Expectancy Table, found in Publication 590, Individual Retirement Arrangements.
By the end of the year, you must have withdrawn that amount from your accounts. The penalty for not withdrawing the correct amount is merciless: 50% of the amount not withdrawn, in addition to the tax that is due on the withdrawal.
In the year you turn 70½, you have the option to delay your RMD until April 1 of the following year. You must also make your second RMD during the same year. If you were to do this, it generally requires some advance tax planning. Most retirees take the withdrawal in cash, as they generally use it for living expenses. However, if you do not need the money, you can transfer the stocks from the IRA to a brokerage account and pay the taxes due.
Required minimum distributions apply to all tax deferred retirement accounts, such as, IRAs, SEPs, SIMPLE IRAs and employer-sponsored retirement accounts. If you have multiple IRAs, you can take your RMD from just one account, as long as it totals your mandatory withdrawal amount.
Employer-sponsored retirement plans, however, have some unique rules. For 401(k) plans, 403(b) plans and 457(b) plans, the IRS requires you to apply your divisor by the balance of each account, and then take a distribution from each account. Generally, you want to roll your employer-sponsored accounts into a Rollover IRA for this reason. If you are still working at 70 ½ and contributing to your employer’s retirement plan, you do not have to take the required minimum distribution, unless you are more than a 5% owner in the company.
You can certainly take more than your required minimum distribution requires, but you cannot apply the amount to future year’s RMDs.
At Henssler Financial we believe you should Live Ready, which includes understanding how the required minimum distribution rules affect you. If you have questions regarding your mandatory IRA withdrawals, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
