Don’t forget your minimum distribution required – Lowell Sun
As the end of the year approaches, an important deadline for retirement account holders is also approaching: the minimum required distributions.
A Minimum Distribution Required (RMD) is the amount of money you must withdraw from almost any tax-advantaged retirement account. Under the passage of the Secure Act in 2019, the Required Start Date (RBD) was moved from age 70 and a half to age 72, for people who reached the age of 70 and a half after the 31st. December 2019, or, in other words, anyone born after June 30, 1949..
The dollar amount to be withdrawn is determined by the total amount of savings in tax-deferred retirement accounts as of December 31 of the previous year. This dollar amount is then divided by the IRS life expectancy table based on your current age. For example, a 75-year-old in 2021 had a total of $ 500,000 in tax-deferred savings as of December 31, 2020. Therefore, the RMD for 2021 is $ 500,000 divided by 22.9 (the factor of IRS life expectancy for 75 years), which equates to $ 21,834.06.
The annual deadline to take your RMD is December 31st. You can defer taking your first RMD until April 1 of the year after you turn 72, but choosing this option means taking both your first and second RMD in the same year, which could cause you to owe more. taxes only if you had taken each RMD in separate years.
Once the RMDs begin, you are required to take minimum distributions from your retirement plans each year, based on your account balance and the IRS life expectancy tables. If you fail to take an RMD when required, or if you withdraw less than required, you will be charged a 50% penalty on the amount you did not withdraw.
If you have multiple 401 (k) plans, the minimum distribution should be determined and removed separately from each 401 (k). This also applies to Roth 401 (k) s. If you have multiple IRA accounts, the minimum distribution should also be determined separately for each IRA, however, unlike 401 (k) accounts, you can add up your IRA accounts and take the total distribution from one or more of your accounts.
Many investors feel that RMDs need to be withdrawn all at once, however, there is no such requirement. RMDs can also be withdrawn in increments throughout the year. For example, if your RMD for the year is $ 12,000, you can withdraw $ 1,000 each month, which will cover your RMD for the year. This can allow more money to stay in your account to grow and accumulate over the year.
As with everything tax and retirement, there are different rules and life expectancy factors that apply when it comes to taking the minimum required distributions (i.e. inherited IRAs spousal and unmarried, 401k assets and Roth IRAs, to name a few. If you are unsure of the best RMD strategy for your needs, you may want to consult your financial advisor for guidance. advice regarding your particular situation.
Martin Krikorian, is President of Capital Wealth Management, a registered investment adviser providing “fee-only” investment management services located at 9 Billerica Road, Chelmsford. To schedule a free, no-obligation portfolio review, you can reach it at 978-244-9254 or by email at [email protected]