Could you run us through the mandatory withdrawal requirements with some of the IRA products?
If you have money in a retirement plan, you typically must start withdrawing that money in rules called “Required Minimum Distributions” (RMDs). If you don’t take your RMD, you’ll have to pay a penalty of 50% of the RMD amount. As you get older, you need to take a larger % out of your IRAs each year. Check the IRS RMD chart for the correct percentage based on your attained age. Normally, you add up all of your IRAs and can take the RMD from whichever IRA you choose or a % out of each one.
RMD rules differ for different types of retirement plans:
- IRAs, SEPs and SIMPLEs: You must take your 1st RMD by April 1st after you turn age 72, then by every Dec 31st. (If you waited till April 1st of the year after you turned 72, then you would need to do your 2nd RMD for age 73 the same year.)
- 401Ks and 403bs: If your plan allows, you can wait to start RMDs until you retire, if after age 72.
- Inherited non-spousal IRAs or Roth IRAs: Typically 10 years after death of IRA / Roth owner
- Roth IRAs: Never during your lifetime. This is also an amazing asset to leave to your heirs.
There are more RMD rules and they are complex. Here is the IRS website which lists all of the rules.
A “Qualified Charitable Distribution” (QCD) is another way to satisfy the RMD. If you are over 70 ½ and if you don’t itemize, this is an amazing strategy. You can make a direct transfer of some of your IRA to your DAF (Donor Advised Fund) or favorite charity. Although you won’t get a tax deduction for the transferred amount, this QCD will be excluded from your income, with the result that you may get the additional benefit of cutting the amount of your Social Security benefits that are taxed. Also, since your adjusted gross income will be lower, tax credits and certain deductions that you claim with phase-outs or limitations based on AGI could also be favorably impacted.
Every taxpayer’s situation is unique and there are multiple strategies that could apply to your personal situation. The best way to ensure that you are putting yourself in a tax advantaged position is to seek advice from an experienced, qualified professional. The above information should not be construed as tax or legal advice.
