Thursday, August 20, 2015

Understanding Required Minimum Distributions - Part II

In an earlier post, we reviewed the basics of Required Minimum Distributions (RMDs). In this post, we will continue the discussion with some rules about RMDs and mistakes to avoid when you have multiple retirement accounts.

In particular, it is important to note the type of retirement account in question. For 401(k) and 457(b) accounts, RMD must be calculated for and taken from each individual account. However, for 403(b) and IRA accounts, RMD must be calculated for each individual account, but the IRS allows individuals to take the collective total from one or more of the accounts.

To illustrate, let’s visit the case of John Doe, who is turning 74 in 2015. In this case, let’s assume he has not one IRA valued at $100,000 as of December 31, 2014, but he has three such IRAs, each with a balance of $100,000 as of December 31, 2014.

In this case, his RMD is still calculated for each account as $4,201.68, based on his factor of 23.8 ($100,000 / 23.8 = $4,201.68). Each of his IRA custodians will calculate his 2015 RMD and notify John of the amount, which can sometimes get confusing. This can often lead the individual to believe they must take that amount from each account.

However, as we just noted, he can actually take the total RMD from any one or more of his IRA accounts. So, he has total RMD for 2015 of $12,605.04 ($4,201.68 * 3 = $12,605.04). John can actually take this total RMD from one or more of his IRA accounts in any amounts he would like, so long as the total withdrawn is at least $12.605.04.

Knowing this, John can selectively choose which account(s) to withdraw from based on factors such as liquidity and performance.

There are still other considerations when it comes to RMD such as: RMD when still working; RMD for charitable donations; and RMD for Roth 401(k)s. That’s why we at Kemp Harvest Financial suggest you work with a qualified retirement planning specialist to incorporate all of these issues into your comprehensive retirement plan.

If we at Kemp Harvest Financial Group can help you in any way with regard to your Required Minimum Distributions or other financial planning needs, please feel free to contact us.

For more topics like this, check out our radio show “Retirement Plain and Simple” every Saturday morning at 8 on WNPV 1440 AM and like us on Facebook!

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Author: Todd Little, CFP®, AIF®

Todd Little is a financial planner with Kemp Harvest Financial.  Todd is a CERTIFIED FINANCIAL PLANNER professional and has a Bachelor of Science degree in Economics from Pennsylvania State University.  Todd is a member of the Financial Planning Association and holds FINRA Series 6, 7 and 63 licenses.  In addition to meeting regularly with clients, Todd works very closely with Mark Kemp and our client service staff to create individual retirement income plans and help our clients navigate the retirement process.