The ABCs of RMDs
Hello, ladies and gentlemen, it’s David Wentz here with Tax Favored Benefits. We are here this month to discuss Required Minimum Distributions, or RMDs for short. As always, we work for you. If you ever have a question regarding your financial landscape, never hesitate to call or reach out to your financial advisor/professional. We work at your convenience to help you achieve your goals.
Part of building your financial landscape involves paying yourself first. What I mean by this is saving for retirement, and the earlier you can begin saving the better off your retirement account is going to be. There are many factors that go into retirement planning, one of which is Required Minimum Distributions (RMDs).
So, what is an RMD?
Essentially, this is the minimum amount of funds you have to legally withdraw from your retirement account each year once you reach retirement age. For the vast majority of retirement accounts, you will be required to take these distributions. So, if you have a traditional IRA, SEP IRA, SIMPLE IRA, or 401(k) account you will be subject to the RMD rules. However, if you have a ROTH IRA, withdrawals from the account are NOT required until after the death of the owner of the Roth IRA.
When to take your RMD
Naturally, the next question revolves around when you begin to take your Required Minimum Distribution. You MUST begin to take your RMD no later than the year you turn 70½. If you do not, there are strict rules about what will happen to your account. In the event this happens, you will be required to pay a 50 percent penalty fee, and your money will be taxed at ordinary income rates. Thus, you have greatly depleted your distributions and put yourself in a tough spot during retirement. Conversely, the earliest you can begin to take RMDs is age 59½. This is not the case for everyone and not everyone will be financially able to do this. Every individual’s situation is different, and you should have an ideal age that you wish to retire. Having that age in mind will help you to monitor what your Required Minimum Distribution is going to be and how it changes as you save more and see your retirement account grow.
Calculating your RMD
So, how do you calculate your RMD? Calculating your Required Minimum Distribution is a fairly simple calculation and there are many resources to help you do this. This begins with the IRS Uniform Lifetime Table, which can be found at the IRS website. Looking at the table, you find your age and corresponding life expectancy value. Upon finding your life expectancy value, take your retirement account balance, as of December 31 of the previous year, and divide it by your life expectancy value. Again, this is a simple calculation and with advances of the Internet it has become even easier to monitor.
Required Minimum Distributions are an important part of your retirement planning. If your financial advisor has not discussed RMDs with you, get on the phone and call them. Ask them about these things to make sure that everyone is on the same page in regards to your retirement planning. You have worked hard to get to retirement. Make sure you are maximizing your retirement by being educated about these things before you hit retirement. Ben Franklin said, “An investment in knowledge pays the best interest.” Ask questions and continue to plant seeds in your financial landscape.
About the Author
David B. Wentz is the CEO of Tax Favored Benefits, Inc. located in Overland Park, Kansas. David B. has been in the industry for over 25 years and brings a wealth of experience and knowledge to his clients. Upon graduating from the University of Kansas in 1989, David attended the University of Kansas Law School, where he graduated in 1992 with a Juris Doctor degree. Over his 25-plus year career, David has worked to build a national footprint. In addition, David has led multiple insurance companies in Retirement Plan and Life Insurance sales. David also speaks at various professional and business seminars on the subjects of pension, profit sharing, 401(k), tax favored benefits, and investment programs.
Securities and investment advisory services offered solely through Ameritas Investment Corp. (AIC). Member FINRA/SIPC. AIC and Tax Favored Benefits, Inc. are not affiliated. Additional products and services may be available through David B. Wentz or Tax Favored Benefits, Inc. that are not offered through AIC. Securities email: dbw@taxfavoredbenefits.com
