First Fidelity Group, Inc.
  • Home
  • Nurses
  • Services
  • About
  • Blog
  • Calculators
  • Events
  • Contact

Blog

RMD 101: What You Need to Know

3/8/2018

 
Picture
​Turning 70 soon? If so, the IRS may have a gift for you. It’s required minimum distributions, also known as RMDs. As the name suggests, RMDs are mandated withdrawals from your retirement account. They’re required if you own a traditional IRA, 401(k) plan or similar qualified account.
 
As you likely know, traditional IRAs and 401(k) plans are treated as tax-deferred accounts. You don’t pay taxes on growth inside the account as long as you don’t take a withdrawal. Also, you may have made contributions to the account with pretax dollars. That means your entire amount of IRA or 401(k) dollars may be untaxed.
 
While tax deferral is a powerful tool, you can’t defer taxes forever. Eventually, the IRS wants to tax your accumulated growth. When you’re age 70½, the IRS requires you to take taxable distributions out of your tax-deferred accounts. The exception to this rule is the Roth IRA. Since Roth distributions are tax-free, they’re exempt from the RMD rule.
Not sure how RMDs will impact your retirement? Below are a few common questions and answers about RMDs and how to plan for them:

When do you start RMDs?
The RMD age is 70½, but you don’t start distributions on the day you reach that age. The formula for when to begin is a bit more complicated than many retirees assume. You have until April 1 following the calendar year in which you turn 70½ to take your first RMD from an IRA.1

The rules for your 401(k) are slightly different. If you’re retired, the rules are the same as they are for an IRA. If you’re still working past age 70½, however, you can delay RMDs from your employer’s 401(k) plan until April 1 following the calendar year in which you retire. Keep in mind, this applies only to the 401(k) from your current employer, not balances from previous employer plans.1

How much will you take?
Your RMD amount depends on your account balance and your age. The IRS has a helpful worksheet you can use to estimate your distribution. The agency assigns a factor for each age past 70½. The factor decreases as you get older. You simply divide your Dec. 31 account balance by the factor for the relevant age.

Since the factor gets smaller as you get older, your withdrawal will increase relative to your balance. If you live into your 90s, you could be withdrawing 10 percent or more of your balance each year as an RMD, so it’s important to plan appropriately.2
 
If you have a spouse who’s at least 10 years younger than you, your distribution formula is different. You can use a joint schedule that utilizes different factors. The same is also true if you are an IRA beneficiary. You may want to consult with a financial professional to get an accurate distribution estimate.

What if you have multiple accounts?
It’s possible that you may have multiple IRAs or 401(k) balances. It isn’t uncommon for individuals to accumulate several qualified accounts throughout their career. The RMD rules regarding multiple accounts differ slightly for IRAs and 401(k)s.
 
For IRAs, you can simply aggregate your total IRA balances and then take the appropriate RMD from one account. You can also take the RMD from several accounts if you wish. As long as you’re taking the appropriate total RMD for your IRAs, it doesn’t matter which IRA the distribution comes from.
 
If you have multiple 401(k) plans, you have to take a unique RMD from each 401(k) balance. That could be complicated if you have multiple 401(k) balances from former employers. For simplicity’s sake, you may want to consider consolidating those balances into an IRA. That could reduce the risk that you accidentally forget to take an RMD.

What happens if you don’t take the RMD?
If you miss an RMD, either accidentally or intentionally, you could face a 50 percent excise tax on the skipped amount.1 However, the IRS does offer corrective programs. If you miss a distribution, you may be able to work out a plan with the IRS to make up the distribution and avoid the penalty. Again, a financial professional can assist you.
 
Ready to develop your RMD strategy? Let’s discuss it. Contact us today at First Fidelity Group. We can help you analyze your accounts and create a plan. Let’s connect soon and start the conversation.

 
1https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds
2https://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf
 
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
17378 - 2018/2/13


Comments are closed.

    First Fidelity Group

    With more than 39 years of experience and knowledge, we've seen it all. We understand each client is unique and faces different challenges.

    Archives

    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    October 2019
    August 2019
    June 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017

    Categories

    All
    Assets
    Business Succession Planning
    CARES Act
    College
    COVID
    Death
    Disability
    Emergency Fund
    Estate Planning
    Financial Planning
    GDP
    Insurance
    Long-Term Care
    Managing Medical Expenses
    Milestones
    Pandemic
    Retirement Budget
    Retirement Income Planning
    Retirement Planning
    Social Security
    Stimulus
    Tax Planning
    Thankful
    Thanksgiving
    The Market

    RSS Feed

First Fidelity Group, Inc. 
7041 Canal Blvd.
Suite # 133
New Orleans, LA  70124

​
337.560.1805
info@FFGretire.com
Picture
Site Map
Home
Services
About
Contact
Licensed Insurance Professional. Respond and learn how financial products, including insurance and annuities can positively impact your retirement. This material has been provided by a licensed insurance professional for informational and educational purposes only and is not endorsed or affiliated with the Social Security Administration or any government agency. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
  • Home
  • Nurses
  • Services
  • About
  • Blog
  • Calculators
  • Events
  • Contact