RMD is the acronym for Required Minimum Distribution.
It is also referred to as MRD (Minimum Required Distribution).
It means taking money from your pre-tax account so Uncle Sam can get a cut.
In this episode, we will dive into people’s questions regarding RMD.
- What is the rule about taking RMD before April 1st of the year and what happens if you miss it?
- Why is the December 31 account balance important and what happens if I have more than one account?
- What are the rules regarding a 403 B plan, a simple IRA, and a traditional IRA?
- Which rules apply to Roth IRAs, and how are they different than other retirement accounts?
- What happens if you have turned 72 before April or if you will turn age 73 in the future year?
- Who is the account holder of a beneficiary IRA?
- What is the Secure Act and the Uniform Lifetime Table? And, why does it matter?
Summary: Wealth Inside and Out® Podcast – What is Required Minimum Distribution?
Hi, my name is Annette Bau (bah oo), your Wealth Inside and Out®> Podcast host. I’m a Certified Financial Planner™ and founder of The Millionaire Insider®.
This is the Wealth Inside and Out® Podcast.
Hi, my name is Annette Bau (bah oo). I’m a Certified Financial Planner™ and founder of The Millionaire Insider®.
This is the Wealth Inside and Out® Podcast.
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Let’s dive into
What is Required Minimum Distribution?
Understanding Pretax Dollars
Pretax dollars include money deposited in your pre-tax account before taxes are paid. Examples include an IRA, 401, TSP, or 403B.
Taxes need to be paid on these funds – that is where the required minimum distribution comes into play.
IRS Guidelines for Required Minimum Distributions
The IRS has guidelines regarding the minimum amount you must take out and pay taxes on for the year.
The distribution is age-driven, based on life expectancy. The IRS continues to change the age, so search it online for the current age or check with a qualified tax advisor.
There are penalties for not taking enough money out, so make sure you or a qualified advisor correctly calculates the RMD amount.
Always Consult with a Qualified Advisor
Checking with a qualified advisor before taking out your RMD is important. You just don’t want to take out the wrong amount.
If you have the time to research the amount and verify it is accurate, great.
Consulting with a qualified tax professional is worth the time and money for most people.
Deferring Your Asset to Heirs
Why are you required to take a minimum distribution versus letting you defer it and then pass it on to your heirs?
In the IRS code, Congress allows you to save some money and defer the taxes on it for decades.
No one has paid taxes on that money, and the IRS needs to get tax revenue.
Taxation is how the country funds government expenses, and this is one source of tax revenue.
It’s simply paying your fair share of money that has not previously been taxed.
RMD Rules for Beneficiaries
Most people die with some money left over in their IRA that has not been taxed.
IRS Rules For Spouses and Children
Spouses have the most beneficial rules because Congress wants to protect spouses to some degree and not bankrupt them.
In 2019, the IRS changed the rules for someone who died in 2020 or after. As a result, many people have to pay more in taxes.
Generically speaking, you have ten years to get the money out of an IRA if you’re a non-spouse, inheritor, or beneficiary. As a result, you will have more taxable income so plan accordingly.
A mix of rules comes into play depending on the age of the person inheriting and the age of the person who died.
A trust (or non-human) must take out the money in five years. Therefor, you need to create a tax plan when you inherit money.
In today’s episode, we dive into exceptions to the rule, including what to do if you have multiple retirement accounts and when to separate them.
Recap – What is Required Minimum Distribution
We learned who must take RMD and the different ages. It’s gone up to 73 from 72 and will likely continue to change, so confirm it online or with a qualified advisor. We also reviewed when you can defer RMD and what to do if you have multiple accounts.
Penalties have been lowered, but you need to take the minimum amount required by law to avoid penalties.
We talked about the difference between an IRA and a Roth IRA, which is important, and then what to do if you have several accounts.
Until our next episode, take one action that will help you create a secure financial future and retirement you love.
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Thank you so much for joining me for
What is Required Minimum Distribution (RMD)?
I’m Annette Bau (Bah oo).
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Bye for now.