Question:
I’m required to take minimum distributions from my retirement account. Do you have any tips to help me minimize what I pay in taxes, or how I can be sure to avoid penalties?
Answer:
First and foremost, if you are required to take a distribution during the year, you must take it by December 31st; otherwise, you will be assessed a penalty of 50% of the amount not withdrawn. The only time you can delay a required minimum distribution (RMD) is the year you turn 70½. The first RMD can be delayed until the following year. For example, if you were to turn 70 ½ in 2013, you could choose to delay taking your RMD until next year. It must be taken by April 1, 2014. You will also be required to take an RMD for 2014. Most of the time it does not pay to defer the withdrawal, as it often pushes a taxpayer into a higher tax bracket.
There are a few strategies, however, you may consider when taking RMDs. If you are still working and contributing to your company’s 401(k) plan, and you are not more than a 5% owner in the company, you may not have to take a distribution from the plan. The IRS lets the employer decide.
You should remember that a distribution does not mean you have to sell your stocks. You may consider transferring your holdings to your brokerage account. The market value must equal or exceed your RMD to satisfy the requirements. You still incur the taxes owed on the amount withdrawn from the IRA. The silver lining, however, is that when the stock is transferred, you reset your cost basis in the stock because you are paying taxes on the previous investment growth. Additionally, by doing this you do not have to rebalance or rearrange your portfolio.
If you do intend to sell stocks and take a cash distribution, you may consider selling holdings with the lowest cost basis, or holdings that have not performed well.
At Henssler Financial we believe you should Live Ready, which includes understanding that there is a strategy to withdrawing your investments as well. If you have questions regarding your required minimum distributions, 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.
