At age 70 you need to be aware of these rules.

 If you have retirement accounts, the IRS has allowed you to have assets growing in those accounts without paying income taxes on the income or gains. At age 70 ½, the IRS wants to begin taxing those accounts by making you take money out, whether you want to or not. Required Minimum Distributions (RMDs) are one of those facts of life that many dread, and that make life even more confusing and complicated. Let’s try and reduce the confusion.

For retirement account owners, the RMD rules apply to Traditional, SEP and SIMPLE IRAs, qualified plans like 401ks, 403(b)  and governmental 457(b) accounts. The RMD rules do not apply to Roth IRA owners, but they do apply to Roth IRA beneficiaries. If a non-spouse inherits a Roth IRA, they are required to take RMDs no matter what their age is, just like the non-spouse beneficiary of all retirement accounts.

A word of caution: if you inherit an IRA from someone other than your spouse, you must begin taking RMDs the year after the death of the owner, not when you reach 70 ½. Penalty for non-compliance, 50% of the amount you should have withdrawn!

Generally, your first RMD is due for the year you reach age 70.5. However, you need not start receiving distributions from your retirement account until your required beginning date (RBD). Generally, your RBD is April 1 of the year following the year you reach age 70.5. If you are still employed at age 70.5 and you participate in a qualified plan, 403(b) governmental 457(b) account, you may be allowed to defer the start of your RMDs until after you retire. This exception, however, does not apply if you own at least 5% of the business that adopted the plan. Your RBD is the April 1^st after the year you turn 70.5. Let’s look at an example. You turned 70 on September 30, 2016, Happy Birthday! On March 30, 2018 you turn 70.5, so your RBD is April 1, 2019. Your 1^st RMD must be taken by the RBD; you do not need to take the initial RMD in the year you turn 70.5, 2018. But, if you wait until 2019 to take your initial RMD, you will later that year, by 12/31/19, need to take your RMD for 2019. By delaying your initial RMD, you end up taking 2 distributions in 2019. Since these distributions are taxable, doubling up in one year could push you into a higher tax bracket. Tax planning here becomes important… because it might make more sense to take one in 2018 and one in 2019.  You won’t know until you do a tax analysis which can performed by our tax accountant.

As we mentioned earlier, your first RMD is due by April 1 of the year following the year you reach age 70.5. All subsequent RMDs must be taken by December 31 of each applicable year. If you fail to take the RMD by the applicable deadline, you will owe the IRS a 50% excise tax on the amount you fail to take. For instance, if your RMD this year is $10,000 and you distribute only $5,000 by the applicable deadline, you will owe the IRS $2,500 (50% of $5,000).

The amount you are required to withdrawal is based on a table the IRS uses, which is based on your life expectancy. Each year the percentage you need to withdraw increases, and is applied to the value of your account as of the previous December 31^st. If you participate in a qualified plan, your plan administrator will assist you by calculating your RMD amount. If you are a Traditional IRA owner, your IRA custodian must notify you when an RMD is due from your account for the year, and is also required to either provide you with the calculated RMD amount or offer to calculate the amount upon request.

If you have IRAs, you can take the corresponding RMDs from each one, or you can base your withdrawals on how each account is performing, taking larger amounts from the lower performing accounts. The IRS doesn’t require you to take RMDs from each account; their only concern is that the total amount of your RMDs is withdrawn. You cannot mix and match between IRAs and qualified plans like 401ks.

Since these withdrawals are taxable you might want to consider having Federal and State income taxes withheld from the distributions so you do not have a large tax liability due on April 15^th.

Do you need your required minimum distributions to help defray your monthly living expenses? If so put them in your bank account, and spend them prudently. If not, you might want to consider using these funds to help you tackle other financial goals. If a goal of yours is to create a legacy and pass an inheritance to the next generation a life insurance policy, or a second to die life insurance policy might help accomplish that goal, and the RMDs could be used to fund that policy. If helping grandchildren fund their higher education is a goal, you might want to funnel your RMDs into a 529 plan.

If you have questions about your portfolio, we can help. We offer a no-obligation first consultation. You can schedule your appointment today by calling us at 216.521.1711, emailing us at Quarterback@Lineweaver.net, or by clicking here.

Securities offered through Triad Advisors, LLC, member FINRA/SIPC. Advisory services offered by Lineweaver Wealth Advisors, LLC. Lineweaver Wealth Advisors, LLC, is not affiliated with Triad Advisors, LLC.