OPTIMIZING REQUIRED MINIMUM DISTRIBUTIONS
Provided by MidAmerica Financial Resources
So, you’re about to turn 73 years old. Happy birthday.
The number is an important milestone, as it marks the time when required minimum distributions – or RMDs – begin to be withdrawn annually from individual retirement accounts and employer-sponsored retirement plans. There are tax consequences associated with RMDs, and I’m going to share with you a few tips that can help you optimize the impact on your bottom line.
For IRAs, you must begin withdrawing from a traditional IRA by April 1 following the year in which you turn 73. The only exception is if you’re married and your spouse is more than 10 years younger than you. In that case, the RMD amount is based on your joint life expectancy. One more note: Roth IRAs do not require an RMD.
For employer retirement plans — 401(k)s, for instance — the same timeline applies: You must begin withdrawing from the plan by April 1 following the year in which you turn 73. Another note: If you’re still working past 73 and you own 5% or less of a company, you may be able to delay RMDs until you retire.
It’s possible that you could receive a lump-sum distribution from a 401(k), profit-sharing, and stock purchase plan if you complete it in a one-year period. If so, you’ll be taxed at the rate for single taxpayers. Also, if you were born before 1937, you qualify for a 10-year forward income averaging.
To calculate your RMD, take the total balance as of December 31 divided by your life expectancy. That’s the distribution amount.
There’s a bit of leeway here that may provide you with more favorable tax treatment:
You can either take your initial RMD in the year when you turn 73 or up until April 1 of the following year.
If you delay your RMD until the following year, you must take two RMDs that year which may increase your tax consequences.
You can take your RMD as a series of withdrawals rather than one lump payment, which may help you with your monthly cash flow.
Don’t forget to update your beneficiaries. For IRAs, account holders can designate anyone as a beneficiary. For employer-sponsored plans, account holders must designate their spouse as a beneficiary unless the spouse specifically waives the right.
Tax consequences for RMDs can be confusing. Reach out to a financial professional with any questions.
MidAmerica Financial Resources may be reached at 618.548.4777 or greg.malan@lpl.com www.mid-america.us
Securities and advisory services offered through LPL Financial, a Registered Investment Adviser, Member FINRA/SIPC.
MidAmerica Financial Resources and Malan Financial Group are separate and unrelated companies to LPL.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal.
LPL Financial does not offer tax advice or services.
This material was prepared by LPL Financial, LLC
