The IRS wants the tax dollars they so graciously allowed you to defer over the years by investing in IRAs, 401ks and other “qualified” retirement plans. To collect those taxes, they require you to start taking withdrawals from those accounts, annual required minimum distributions, or RMDs.
RMD rules have changed in recent years, so it is important to know which rules apply to you and how.
Calculating your RMDs
If you are an IRA owner and you reached age 70½ in 2020 or later (born after June 30, 1949), you must take your first RMD by April 1 of the year after you reach 72. If you were born before June 30, 1949, you should already be taking an annual RMD.
To calculate your RMD for 2022 you need to know the balance of each of your qualified savings plans on the close of December 31, 2021, then divide these values by a life expectancy factor based on your age. The Uniform Life Expectancy factor is found in Table III of Appendix B of IRS Publication 590-B. If your spouse is the sole beneficiary of your plan and is ten or more years younger than you, you would use Table II, the Joint and Last Survivor Table in the same publication.
If your retirement funds are in multiple IRAs, you can take the total amount of RMDs from one account. But if you have multiple 401k plans, and are no longer employed, you need to take the appropriate RMD from each account separately—including Roth 401ks. That’s right, if you leave money in a Roth 401k past age 72, even though the funds might not be taxable, you could be required to pull money out per the IRS Table.1
If you inherit a Traditional or Roth IRA, there are other new rules to follow. The SECURE Act of 2019 mandates that non-spouse inherited IRAs and other retirement plans must be depleted within 10 years. That can be problematic in terms of the tax implications of larger withdrawals and must be handled strategically.
Dealing with the complications
At HBK/HBKS Wealth Advisors, we work with our retired clients to help them determine the best approaches to keeping as much of their retirement savings as possible in their own pockets. We pride ourselves on our personalized attention, working hand-in-hand with each client. Carissa Giordano-Steinmeyer, a Senior Advisor Associate in our Warrendale office, is in charge of calculating our advisory clients’ RMDs each year. She has advice for people faced with complicated RMD formulas:
1) Make sure you keep track of your accounts; we can only assist with RMDs for accounts we know about. You don’t want to miss an RMD and incur the resulting penalties. This includes annuities.
2) Keep track of the basis of your investments, that is, your non-deductible contributions, particularly if you are merging multiple accounts.
3) If you transfer an IRA from one firm to another, be sure you can get statements and tax forms from the original firm for the year prior to transferring.
4) If you are not sure if you need to take an RMD, ask us.
5) If you are not sure how much tax to withhold from an RMD, ask us.
6) If you have inherited an IRA and are not sure which rules apply to you, ask us.
The most important part of annual RMD calculations, according to Giordano-Steinmeyer, is to start the process early. Unless you enjoy sitting on hold, then printing and signing or scanning documents the week between Christmas and New Year’s Day, the time to start the process is now. If you have questions or concerns, call us. We’re here to help.
1 – Secure Act 2.0 has eliminated this requirement effective January, 2024
IMPORTANT DISCLOSURES
The information included in this document is for general, informational purposes only. It does not contain any investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any investment advice. If you would like investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.
Any investment involves some degree of risk, and different types of investments involve varying degrees of risk, including loss of principal. It should not be assumed that future performance of any specific investment, strategy or allocation (including those recommended by HBKS® Wealth Advisors) will be profitable or equal the corresponding indicated or intended results or performance level(s). Past performance of any security, indices, strategy or allocation may not be indicative of future results.
The historical and current information as to rules, laws, guidelines or benefits contained in this document is a summary of information obtained from or prepared by other sources. It has not been independently verified, but was obtained from sources believed to be reliable. HBKS® Wealth Advisors does not guarantee the accuracy of this information and does not assume liability for any errors in information obtained from or prepared by these other sources.
HBKS® Wealth Advisors is not a legal or accounting firm, and does not render legal, accounting or tax advice. You should contact an attorney or CPA if you wish to receive legal, accounting or tax advice.
