Required Minimum Distribution Strategies

If you’re one of those investors who still needs to take this year’s required minimum distributions (RMDs) or someone looking ahead to taking them in upcoming years, the following tips may help you develop a practical strategy.

The first distribution for tax-advantaged retirement accounts is required the year you turn 70 ½. (There are no RMDs on Roth IRAs during the owner’s life.) The actual deadline is April 1 of the following year. But keep in mind the deadline for all subsequent years will be Dec. 31, so consider tax ramifications of taking two distributions in one calendar year if you wait until April. On the flip side, if you ever need to withdraw more than a given year’s RMD, the excess distribution won’t apply to the following year.

If you are still working at 70 ½, you may be able to delay withdrawals from a 401(k) or 403(b) until April 1 following the calendar year you retire, depending on your plan’s terms. But individuals who own 5 percent or more of the business sponsoring a 401(k) plan must take distributions by the initial deadline.

Whatever you do, don’t miss a required withdrawal, or you could incur a 50 percent tax on top of regular income tax for the amount that should have been withdrawn. Calculate your RMD correctly; insufficient withdrawals are subject to the same stiff penalty. Your distribution amount is based on the previous year’s ending balance on each account divided by an IRS estimate of your life expectancy. If your spouse is the sole beneficiary of your account(s) and is more than 10 years younger than you, your RMD will be smaller. (See Table II in IRS Publication 590.)

You must take a distribution from each 401k or most other workplace retirement accounts. If you have multiple IRAs, you can take your RMD from any one of them, ideally choosing a lower performing account. Still another option is to take a qualified charitable distribution (QCD), which steers your RMD directly to a charity, reducing your adjusted gross income. For more details on RMDs, see the IRS website.

As you get older, RMDs can become higher than your planned withdrawal rate. But just because they have to come out of tax-deferred vehicles doesn’t mean you can’t reinvest them in a taxable account or a Roth IRA. We can help you create a retirement distribution plan designed to effectively use the assets you’ve accumulated to fund your retirement. Call Denver wealth manager Jordan Dechtman at 303-741-9772, email him at Jordan@JordanDechtman.com or visit our website www.JordanDechtman.com to schedule an appointment. (We do not provide tax advice; coordinate with your tax advisor regarding your specific situation.)

Written by Securities America for Distribution by Jordan Dechtman.

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