Third Quarter 2016 – Required Minimum Distributions

Few things in life are certain—-The Required Minimum Distribution (RMD) is one of them. Below are some things you may not know about RMDs.

Dates and Deadline

Clients are often confused about the deadlines surrounding RMDs from retirement accounts. The first distribution is required by at least the April 1 that occurs after the account owner has reached age 70 ½. But the client is also required to take a second distribution before December 31 of that same calendar year, effectively taking two distributions in one calendar year. After the April 1 loophole comes and goes, all future RMDs have to be completed by December 31 of the year in question.

Painful Penalty

If a client doesn’t take a RMD by the corresponding deadline, they may owe a penalty of 50% of the RMD, plus still have to take the RMD and pay taxes on it.

Take it from one account

Clients who own several different tax-deferred retirement accounts must add up the total of all of those accounts at the previous year-end to determine the RMD for the current tax/calendar year. But they don’t necessarily have to take a withdrawal from each account. Instead, they can pull money from one, some or all of the retirement accounts, as long as the total of the withdrawals meet or exceed the RMD amount.

….Unless it’s a 403(b)

403(b) plan accounts must be added to the total of the retirement accounts to determine the RMD. But, you cannot use distributions from IRAs to satisfy the RMDs from 403(b)’s, nor can you use 403(b) distributions to satisfy IRA RMDs. However, if the client has several different 403(b) accounts, they can take the RMD from just one of the accounts, as long as it’s at least as much as the RMD based on the sum of all of the 403(b) accounts.

Cash or Securities

Retirement account owners are allowed to take “in-kind” distributions from their accounts to satisfy the RMD, meaning that instead of taking cash out of the account, they could transfer securities or shares to an individual or joint account. Although the “in-kind” distribution amount is still taxed as ordinary income for the value on the date of the distribution, the new cost basis of the holding is now that same amount, and any future sale of the position will be treated as a traditional capital gain (or loss) event.

At the Volkers Group, we strive to assist our clients achieve their goals within their personal risk tolerance. Call your advisor and determine if changes need to be made to your account.

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