15 min
Required Minimum Distribution Uncommon Cents with Bowman Financial Strategies
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- Investering
Erik: (00:06)
You're listening to uncommon sense, a podcast by Bowman Financial Strategies. I'm your host, Erik Bowman, and thank you for joining me today. Hi everyone and thank you for joining me today. This is Erik Bowman, owner of Bowman Financial Strategies. Our topic today is required minimum distributions or more commonly known as RMDs.
Erik: (00:32)
To some of you, it may come as a shock that you cannot keep your retirement funds in your retirement account indefinitely. Generally speaking, you really must start taking withdrawals from your IRA, your simple IRA or your SEP IRA or even your qualified retirement plans such as a 401k or 403B when you reach 70 and a half. Roth IRAs by contrast do not require withdrawals until after the death of the owner. Your required minimum distribution or RMD is the minimum amount of taxable distribution that you must take out of your retirement account each year. Once you reach 70 and a half.
Erik: (01:16)
The RMD poses all sorts of conundrums for retirees, like how is it calculated? Who calculates it, when is it due? What happens if I don't take it and what if I don't want to take it? And the list goes on. Today I'm going to cover the basics of an RMD. Who does it apply to? Calculations and resources to further educate yourself and of course some potential strategies that may alleviate some of the challenges surrounding RMDs, namely taxes.
Erik: (01:52)
So let's start from the beginning. When you turn 70 and a half, you are required to take an RMD from your retirement account, an IRA, for example, by April 1st of the following year. For all subsequent years, you must take the distribution by December 31st of that year. For example, if you turn 70 and a half in August of 2020 you must make your distribution by April 1st of 2021. If you choose to do that, you would also have to calculate your 2021 RMD and also take that in 2021. So in actuality, in the first year that you decided to take that RMD, you would actually have to take two distributions. Now you don't have to delay until April 1st you can take your RMD in the year that you turn 70 and a half.
Erik: (02:49)
An exception to this rule applies to 401ks, also known as a qualified retirement plan, which is the terminology that's used to describe an employer sponsored 401k, 403B, 401A, just to name a few. For these accounts, you must take an RMD by April 1st of the year following the year you turn 70 and a half or upon retirement, whichever is later. If you're still gainfully employed for example, and you have an act of 401k and you're 72 years old, you don't have to take an RMD from that qualified plan that you have at that current employer, even though you're older than 70 and a half. However, once you retire, those RMDs are due by April 1st following the year that you retire. And one really big caveat and a mistake that you do not want to make that is even if you are working and you're older than 70 and a half, if you have an IRA in addition to your 401k, you still must take your required minimum distribution from that IRA. Don't make that mistake and I'm going to be talking about the penalties the IRS can impose if you fail to take your RMDs.
Erik: (04:07)
here are a few other points that may save you some headaches and money in the future. If you have multiple qualified plans or multiple 401k's, meaning maybe you've worked at previous employers and you have simply left your money behind at those various employers 401ks and you have not moved them into IRAs, you must calculate the RMD for each account individually and then take the distribution from each of those respective 401ks by the deadlines. By contrast though, if you have an IRA or multiple IRAs, you can calculate the required minimum distribution for each IRA individually. Add those together and take the total sum of those as a distribution from one of your IRAs. Now, depending on how you're investing your assets, this may be a beneficial thin
Erik: (00:06)
You're listening to uncommon sense, a podcast by Bowman Financial Strategies. I'm your host, Erik Bowman, and thank you for joining me today. Hi everyone and thank you for joining me today. This is Erik Bowman, owner of Bowman Financial Strategies. Our topic today is required minimum distributions or more commonly known as RMDs.
Erik: (00:32)
To some of you, it may come as a shock that you cannot keep your retirement funds in your retirement account indefinitely. Generally speaking, you really must start taking withdrawals from your IRA, your simple IRA or your SEP IRA or even your qualified retirement plans such as a 401k or 403B when you reach 70 and a half. Roth IRAs by contrast do not require withdrawals until after the death of the owner. Your required minimum distribution or RMD is the minimum amount of taxable distribution that you must take out of your retirement account each year. Once you reach 70 and a half.
Erik: (01:16)
The RMD poses all sorts of conundrums for retirees, like how is it calculated? Who calculates it, when is it due? What happens if I don't take it and what if I don't want to take it? And the list goes on. Today I'm going to cover the basics of an RMD. Who does it apply to? Calculations and resources to further educate yourself and of course some potential strategies that may alleviate some of the challenges surrounding RMDs, namely taxes.
Erik: (01:52)
So let's start from the beginning. When you turn 70 and a half, you are required to take an RMD from your retirement account, an IRA, for example, by April 1st of the following year. For all subsequent years, you must take the distribution by December 31st of that year. For example, if you turn 70 and a half in August of 2020 you must make your distribution by April 1st of 2021. If you choose to do that, you would also have to calculate your 2021 RMD and also take that in 2021. So in actuality, in the first year that you decided to take that RMD, you would actually have to take two distributions. Now you don't have to delay until April 1st you can take your RMD in the year that you turn 70 and a half.
Erik: (02:49)
An exception to this rule applies to 401ks, also known as a qualified retirement plan, which is the terminology that's used to describe an employer sponsored 401k, 403B, 401A, just to name a few. For these accounts, you must take an RMD by April 1st of the year following the year you turn 70 and a half or upon retirement, whichever is later. If you're still gainfully employed for example, and you have an act of 401k and you're 72 years old, you don't have to take an RMD from that qualified plan that you have at that current employer, even though you're older than 70 and a half. However, once you retire, those RMDs are due by April 1st following the year that you retire. And one really big caveat and a mistake that you do not want to make that is even if you are working and you're older than 70 and a half, if you have an IRA in addition to your 401k, you still must take your required minimum distribution from that IRA. Don't make that mistake and I'm going to be talking about the penalties the IRS can impose if you fail to take your RMDs.
Erik: (04:07)
here are a few other points that may save you some headaches and money in the future. If you have multiple qualified plans or multiple 401k's, meaning maybe you've worked at previous employers and you have simply left your money behind at those various employers 401ks and you have not moved them into IRAs, you must calculate the RMD for each account individually and then take the distribution from each of those respective 401ks by the deadlines. By contrast though, if you have an IRA or multiple IRAs, you can calculate the required minimum distribution for each IRA individually. Add those together and take the total sum of those as a distribution from one of your IRAs. Now, depending on how you're investing your assets, this may be a beneficial thin
15 min