STEPHEN SMALENBERGER, EA
We’ve talked about RMDs and learned about what they are and when they start. In this video let’s look at how it is calculated, taxed, received and ultimately used.
How to calculate an RMD?
Firstly, a RMD (Required Minimum Distribution) comes from accounts like 401(k)s and IRAs. It is mandatory and starts in the year you turn 70 ½. The amount that needs to be withdrawn each year is based upon a calculation.
For a distribution that needs to be taken in 2017, you would use the value of the account(s) as of 12/31/2016. Then based on your age, you would find the corresponding factor on the IRS life expectancy table and divide the account value by this number. The result is the amount of your RMD for that year. The factor changes and the amount grows each year, so it is important to refer to the table.
How to receive your RMD?
You can receive it in the form of a check, as an ACH transfer to a bank account, or by moving assets. For instance, you could move assets from an IRA to an individual, joint or even your trust account which is changing the location of selected investments from a tax-deferred account to a taxable account.
How much do you want to receive?
Since money is being withdrawn from a tax-deferred account, it is a taxable event. Do you want to have tax payments withheld along the way? For example, you could have a percentage withheld for Federal and/or State taxes.
The amount withdrawn each year needs to be at least equal your RMD amount required. However, you can always take out more.
What do you do with your RMD amount?
Lastly, maybe you don’t need to spend these funds. What are your options?
- Spend it
- Save it
- Reinvest it
- Give it away
- Donate it
- Leverage it
If we can help walk you through some of these decisions let us know. We are happy to help!
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Steve enjoys getting to know clients and hear their unique stories and the lessons learned which has brought them where they are today. One of the reasons he enjoys what he does is the ability to show the outcome that can be achieved with different choices. He also enjoys continually learning.