It’s time to plan your required minimum distribution for 2022. I know. You’re thinking we just covered RMDs for 2021. Yes, that’s because the deadline for 2021 RMDs is December 31. However, on your January statements, your custodian likely provided your account balances as of December 31 and calculated your RMD for 2022.
This information allows you to plan your finances, scheduling multiple withdrawals throughout the year instead of taking one lump sum. Furthermore, you should be able to set up automatic withdrawals on a monthly, quarterly, or custom schedule of your choosing.
While this information is useful, there are some rules to note when it comes to RMDs. First, the calculated RMD you may see on your statement is for that specific account. If you have multiple accounts, like several IRAs or 401(k)s, you cannot always aggregate RMDs. If you have multiple IRAs, you can generally aggregate your RMDs and withdraw from only one account unless you have an IRA that is subject to different RMD rules, like an inherited IRA. If you have more than one defined contribution plan, you must calculate and withdraw your RMDs separately and take the specified amount from each plan.
If you’ve paid attention, our general advice for senior investors is to consolidate your accounts to make calculating RMDs easier, which is why it is important to note that any amount attributable to an RMD is not rollover eligible. You must take your RMD before you roll over or convert your accounts. If you’re planning to roll your 401(k) into your IRA or if you want to covert IRA funds to a Roth IRA, be sure you’ve completed any mandatory distributions first; otherwise, you could face an excess contribution penalty.
Another thing to note is that death or divorce generally won’t affect your required withdrawal for the year. If you were married as of January 1, you are treated as married for the year’s RMD calculation, even if your spouse dies later in the year. Divorce can make RMDs complicated depending on state laws. It is always best to discuss your RMD situation with your financial adviser and divorce attorney.
Finally, if you intend not to take your 401(k) plan RMD because you are still working and not a 5% owner of the company, make sure you are not subject to family attribution rules. Generally, if you are still working, you may delay your company retirement plan RMD unless you are a 5% owner in the company. If your spouse, children, grandchildren, or parents own part of the company, you may also be considered an owner through “constructive ownership” and may be subject to similar withdrawal rules.
This is certainly not an exhaustive list of RMD rules, but these four rules can affect your planning throughout the year. If you have questions on planning your required minimum distributions, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
Listen to the February 19, 2022 “Henssler Money Talks” episode.
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