Tag Archives: RMD

Required Minimum Distributions

In 2017, the oldest baby boomers, who turned age 70 in 2016, reached the required beginning date (RBD) for taking withdrawals from traditional IRAs and employer retirement savings plans: April 1, 2017. The RBD, the latest possible date allowed to take a mandatory required minimum distribution (RMD) from traditional IRAs and tax-deferred plans, is April 1 of the year following the year that an individual reaches age 70½ and baby boomers are there now. At this time, retirees are required to spend down these accounts, whether they need the money or not, and withdrawals are taxed as ordinary income.

A 2017 article in the AAII Journal noted that the RMD schedule does not fit retirees’ spending patterns. The first RMD at age 70½ is 3.65 percent of the account balance and the RMD at age 90 is 8.77 percent of the account balance, which looks like a “waterfall” when plotted on a graph. About $10 trillion is sitting in baby boomers’ tax-deferred accounts. If they do not calculate the amount of their RMD correctly, the penalty is 50 percent of the amount that they failed to withdraw.

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What happens if you are 70 ½ and you have an IRA and a 403(b)?

RMDs, or Required Minimum Distributions have to be taken after you become 70 ½ if you have a retirement account such as an IRA or 401(k).   To determine the amount you are required to take, the value of all of your retirement accounts have to be added together.  If you have multiple retirement accounts you can take the RMD from only one account and leave the others alone … unless you have a 403(b) plan.

403(b) plan accounts must be added to the total of the retirement accounts to determine the RMD.  But  you can’t use distributions from IRAs to satisfy the RMDs from 403(b)s, nor can you use 403(b) distributions to satisfy IRA RMDs.

However, if you have several different 403(b) accounts, you can take the RMD from just one of the accounts, as long as it’s at least as much as the RMD based on the sum of all of the 403(b) accounts.

If you are retired, you may be able to simplify your life by rolling all of your retirement accounts into an IRA.  That way you can eliminate a lot of confusion, and the potential penalties that go along with making a mistake.

If you have questions about retirement accounts, call us.

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