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Episode #27: It’s Time To Talk About RMDs

Today’s Prep:

Required minimum distributions can easily slip through the cracks of your retirement plan. As tax day 2019 is approaching, understand the impact RMDs will have on your finances.

(Click the featured times below to jump forward in the episode)

Equipping Points:

[00:46] –  Why Do RMDs Exist?

  • Simply put, required minimum distributions (RMDs) exist because the IRS wants its money. The IRS enables you to put money in a tax-deferred retirement account, but eventually, they require you to withdraw from it. When you withdraw from that account, they tax the money you withdraw, and this withdrawal is called a required minimum distribution.

[1:41] – How Much Do You Have To Withdraw? 

  • People think you have to withdraw at least ten percent of your account, but that’s not true. There’s actually a table that helps you to determine what you’ll need to withdraw. It’s a bit tricky to navigate, but your advisor should be able to walk you through the process.

[2:39] – A Simple Illustration.

  • Eric illustrates how to calculate your RMD if you turn 70 1/2 this year.

[3:58] – Can You Avoid RMDs?

  • Well sort of, but in order to avoid your RMDs, you’d either have to lose money or run out of money completely. Neither of those goals are worthy of pursuit, so it’s better just to follow the rules and take your RMDs. If you don’t, the government can penalize you.

[4:25] – A Change To Qualified Charitable Distributions.

  • Let’s say you’re in a situation where you have to withdraw $10,000 from your qualified retirement accounts as your RMD. Let’s also suppose you’re charitable. If you send that money to a charitable organization, you won’t have to pay the taxes on that RMD. However, you can’t ever touch that money yourself. It has to go directly to whichever charity you’d like to support. The IRS will tax that money the minute it touches your account.

[5:31] – The Value Of A Roth Conversion.

  • You can also convert your tax-deferred accounts to Roth IRA and Roth (401)k accounts. After all, you don’t have to take an RMD out of a Roth account.

[5:59] – Plan For The Death Of A Spouse.

  • Many couples fail to consider economic impact of losing a spouse. Eric explains how your taxes can actually increase when you lose your spouse.

Today’s Takeaway:

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The host: Eric Peterson - Contact - Call: (515) 226-1500

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