Required Minimum Distribution (RMD) Optimization

You cannot keep qualified retirement funds in your account indefinitely.  Due to changes made by the SECURE Act, if your 70th birthday is July 1, 2019 or later, you do not have to take withdrawals until you reach age 72. Roth IRAs do not require withdrawals until after the death of the owner.  Your required minimum distribution (RMD) is the minimum amount you must withdraw from your account each year.  You can withdraw more than the minimum required amount.  Your withdrawals will be included in your taxable income except for any part that was taxed before (your basis) or that can be received tax-free (such as qualified distributions from designated Roth accounts).

Do these rules apply to my retirement plan?  The minimum distribution rules discussed below apply to:  traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k) plans, 403(b) plans, 457(b) plans, profit sharing plans, other defined contribution plans.

Calculating the RMD:  The RMD for any year, is the account balance at the end of the immediately preceding calendar year divided by a distribution period from the IRS’s “Uniform Lifetime Table.” A separate table is used if the sole beneficiary is the owner’s spouse who is ten or more years younger than the owner.  In this regard, the following materials will be useful to you in determining required distribution amounts and payout periods:

Refer to See IRS Publication 590-B.

You can take your RMDs from one account:

Example:  You have an 2 IRA accounts and a 401(k) plan.  Each has notified you the amount required for distribution.  You can choose to take all the required funds from one account as long as the total withdrawal meets or exceeds the combined total of all accounts required distributions.

Inherited IRAs – if your IRA or retirement plan account was inherited from the original owner, see “RMD after the account owner dies,” below.

Beginning date for your first RMD:

• IRAs (including SEPs and SIMPLE IRAs): April 1 of the year following the calendar year in which you reach age 70½, if you were born before July 1, 1949.  April 1 of the year following the calendar year in which you reach age 72, if you were born after Jun 30, 1949.

Terms of the 401(k) or another retirement plan govern: A plan may require you to begin receiving distributions by April 1 of the year after you reach age 70½ (age 72 if born after June 30, 1949), even if you have not retired.

5% owners: If you own more than 5% of the business sponsoring the plan, then you must begin receiving distributions by April 1 of the year after the calendar year in which you reach age 70½ (age 72 if born after June 30, 1949), even if you have not retired.

Date for receiving subsequent RMDs:  For each year after your required beginning date, you must withdraw your RMD by December 31.  For the first year following the year you reach age 70½ (age 72 if born after June 30, 1949),  you will generally have two required distribution dates: an April 1 withdrawal (for the year you turn 70½ (or 72 if born after June 30, 1949)) and an additional withdrawal by December 31 (for the year following the year you turn 70½ (or 72 if born after June 30, 1949)).

Consequence for failing to take RMD: If you do not take any distributions, or if the distributions are not large enough, you may have to pay a 50% excise tax on the amount not distributed as required.  To report the excise tax, you may have to file IRS Form 5329.

RMDs after the account owner dies:  Refer to IRS  Publication 590-B for the details.   

IF ALL OF THE ABOVE SEEMS TOO COMPLICATED, JUST CONTACT US, WE CAN WALK YOU THROUGH IT ALL. 

Marilyn M. Miller is a registered investment advisor, dba Federal Benefits Advisors, in the State of Washington. This advisor may not transact business in states, where it is not appropriately registered, excluded or exempted from registration. Individualized responses to persons that involve either the effecting of transaction in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption.

Marilyn M. Miller is a registered investment advisor, dba Federal Benefits Advisors is not affiliated with or endorsed by the U.S. Government, the U.S. Armed Forces, any of the federal benefit programs, the State of Washington, any Washington State Agency, or any of the Washington state benefit programs. Marilyn M. Miller, Registered Investment Advisor dba Federal Benefits Advisors nor its representatives do not provide legal or tax advice.