What is the Best Method of Taking My Required Minimum Distributions?

Posted by dfederman on Jul 19, 2011 in Investor Education | Comments Off

When deciding on the method of withdrawing your Required Minimum Distributions (RMDs) from an IRA, ask yourself, “Do I need to spend this money today or is this just an administrative hassle for me?” If you KNOW you need to spend the money soon, and if you have no cash reserves set aside, you may want to take it all out at the beginning of the year rather than subject these funds to the risks of the financial markets. Alternatively, you can set up a “systematic withdrawal plan” to withdraw an equal amount each month. Neither strategy is “the right way.” The most important thing is to be consistent. If the RMDs are simply an administrative hassle, the same strategies apply. However, instead of making distributions to a checking or savings account, you may be moving the funds from a Traditional IRA to a brokerage account (and/or subsequently into a Roth IRA) in which the funds will be reinvested in a diversified portfolio.

Typically the brokerage firm that holds your IRA will calculate the amount you need to withdraw. If you are curious to estimate your own RMD, here is an RMD calculator.

Points to Remember If you fail to make the distribution by the applicable deadline, you could be subject to a 50% penalty on the amount not withdrawn. Plan ahead by withholding applicable amounts of Federal and State Taxes on the distributions.

What are RMDs? Required Minimum Distributions (RMDs) generally are minimum amounts that a retirement plan account owner must withdraw annually starting with the year that he or she reaches 70 ½ years of age or, if later, the year in which he or she retires. However, if the retirement plan account is an IRA or the account owner is a 5% owner of the business sponsoring the retirement plan, the RMDs must begin once the account holder is age 70 ½, regardless of whether he or she is retired. Retirement plan participants and IRA owners are responsible for taking the correct amount of RMDs on time every year from their accounts, and they face stiff penalties for failure to take RMDs.  Source: IRS.gov

Please consult with your tax advisor to determine the most appropriate distribution strategy for tax planning purposes.

For a free review of your personal financial situation, including a portfolio review, contact Ariba at 1-800-808-7488.

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