Why: The IRS says that retirement money cannot stay in a retirement account forever and requires a minimum distribution each year, resulting in you paying tax on your tax deferred dollars.
When: Your first RMD will be due by April 1 of the year after you turn 70 ½ and then you will take another RMD for the current year by December 31. This will leave you taking 2 distributions in one year and may not be the most tax advantaged way to start. To avoid this, you can take your first RMD by December 31 in the year you turn 70 ½ and continue on with one RMD each year after that.
What Amount: The amount you must take is based on your prior year end retirement account balance divided by the number of years left to live (provided by IRS). This is your RMD.
Many retirees take regular withdrawals from their retirement accounts throughout the year as their income to live and their RMDs are satisfied as a default of the distributions. For people that don't otherwise meet the RMD, they must take it anyway, even though the cash is not needed. Either way, any withdrawals from your retirement accounts can cause an unwanted tax burdens. To name a couple examples, withdrawals can cause long term capital gains due to the sale of stocks, bonds, or mutual funds and Social Security benefits taxed when they had been tax free in prior years.
A financial retirement specialist can help you set up a plan to manage your RMD and your retirement income needs. Your plan should include a blend of distributions from taxable retirement accounts such as an IRA or SEP, from tax free accounts such as a ROTH, and from partially taxable accounts such as savings and individual investment accounts. An additional tactic to build into your plan is to schedule conversions from a taxable retirement account to a ROTH. This planning should give you the best opportunity to have your money outlive you and also pay the least taxes.
I invite you to make an appointment for a free consultation to go over the RMD rules and review your current plan.
Financial Investment Team
15350 SW Sequoia Pkwy Ste. 150
Portland OR 97224
*Investment advisory services offered through Financial Investment Team, Inc., an investment adviser registered with the state of Oregon. Securities offered through Peak Brokerage Services, LLC. Member FINRA/SIPC. Financial Investment Team, Inc. is a separate and independent entity from Peak Brokerage Services, LLC.*
California Insurance Licenses OG28007, OE79360