Getting Your RMD Ducks In a Row

Welcome to Mr. Stillman's opus were John Stillman of Rosewood wealth management and this is Ron Stutzman talk about some very interesting stuff on today showing because it affects you a really interesting accident. We we talked a lot on the financial simply radio show and on the podcast are as well and you certainly written about in your blog are MDs. A lot of people don't really understand are MDs and you know I get a basic understanding of what our MDs are just from talking to you so much for there a lot of people out there who don't really get the whole concept. First of all, what is an RMD and why is it so important, so RMD.

Some people call him RDs not to be confused with MR ease from military meals ready RMD's required minimum distributions. Once you get to age 70 1/2 you have to start taking money out of your tax-deferred accounts with required minimum distributions right there is a minimum amount you are required to take out so they can collect tax revenue growth so obviously the reason were talking about this like is a very practical, you have just recently received a letter I recently I recently had a birthday in early June that happen to have a seven at the first lady as a very very high number and universe. First I would actually talk about this on here I think will very high number and point is that I will reach that magic point of turning 70 1/2 before the end of this year it will be in December and so naturally have all these questions about what am I supposed to do. I got a letter saying that I had to take a required minimum distribution from my IRA and but I didn't. I didn't get one from for a 401(k) and I'm just wondering how all that stuff works right.

What do I need to know. Also, let's address that question. First, because you're still working yes you don't have to make a withdrawal from the 401(k) at your current job. Okay as long as you're still working in contributing to that account. It is off the table in terms of accounts you have to withdraw from now, the date you retire. And even if you retired on December 27 this year. You would have to take a withdrawal from the 401(k) for this year.

I'm definitely still working but as long as you stay employed, you're still contributing that 401(k) we don't have to withdraw from okay now the IRA has nothing to do with whether or not you still working, if you're 70 1/2, you're going to have to take money from all those tax-deferred accounts now. It could be say well I left the job, but my money still in the 401(k). I never rolled into an iron doesn't matter if you're not at the job you have to take the money from that text for the 401(k) for 3B TSP if you're a federal employee for 57 plans, IRAs going to have to take your required minimum distributions from this result in your case, yeah, yeah, the two accounts you have the IRA and 401(k) were to take a withdrawal from the IRA and the amount you have to take out is based on your IRA balance okay or not the total of your IRA in your 401(k) balance solely the IRA for new okay so basically the bottom line here is that Uncle Sam now has his hand out and while I haven't been having to pay any taxes on this money in the IRA all this time now and have start doing that. And that applies to anybody using that same situation there so last we looked at your IRA balance that was what about 25 million is what you have sitting in their right and so easily. Yeah, but most of that is growth. You only put in one or 2 million of your own dollars through its it has increased 25 Fulton as of yet you save money on that one or 2 million that you put in, but that 25 million that is grown to you have to pay taxes on all that growth where I really appreciate all that growth yeah well you're welcome there.

We worked really hard on that last and decedent was planted in the beginning was not better yet, actually. I wish all that were true, but thank you very much for pointing it that way and so you have some perspective on how much you have to take out yeah first year is going to be about 3.63.7 percent of your balance okay is how much you have to take out, so let's make the math easy have $100,000 IRA 36 or 3700, roughly, is what you're going to have to withdraw. In this first year.

Okay, let's not so bad now that percentage is going to increase a little bit every year there, but theoretically your balance is also decreasing because you're taking money out true. So depending on how the account is growing. You know that's going to determine how much in terms of actual real dollars, you're required to take out each year okay get this figured out to a seat on very yet they figured out a lot of people think they're going to outsmart the IRS on some of the strategies but know that if they thought through who how this is going to work well now you know right. My birthday was June 10 Okay. December 10 is when I'll hit that magical half year. So my question is when does this have to take place. Does it have to take place by December 10. By the end of the year or what is the timing of this whole issue that's a great question so you could do it now. You take the money out now if you want you could wait until the end of the year. There any tell you have to be 70 1/2.

You can do it whenever during the course of the year for this first one only there you could wait and take it out in the spring.

So for your first withdrawal. You can wait up until April 15 of the following year. Okay, so if for whatever reason you didn't want that extra income in this calendar year. You can wait and do it up to April 15 but all of your future ones have to come out in the calendar year. So if you put this first one off until next spring. You actually have to take to during next year's calendar year and has had to settle in. By the end of the year right okay and so after this first years. The only time you can carry it over to the next one. But then the deadline is December 31 and all future years. Okay so you simply be taking to next year and minutes calendar year. From there, so here's what be aware of what your options are. Now you say why would I ever carry it over. Well, what if Ron you were gonna retire this year. Okay you will work until the end of the year and retire so if that's the case, your income is going be lower next year, so we would actually want to do that we want to put that withdrawal off and then you're withdrawing to next year.

Yes, but you're doing it at a lower income level is going to be taxed less so.

That's just the kinds of things you want to be thinking about. Yet what why is it that most people don't really just get feel that most people don't really understand all that, you know, it just has happened. They haven't had someone like you to sit down and explain it well.

I mean this is one of those things like why would you ever learn about this until you get that letter and you say yes okay not to take money out. Yeah, I mean, you might kinda know that it's a thing that's going to happen at some point down the road, but most people just haven't thought about the mechanics of it until exactly time to do it and so then we have the inevitable question and we probably should mention this a lot earlier.

What if I just leave it in.

What if I don't take it out yet.

What I don't want to take out that 3600 and pay taxes on it. I'm just gonna leave it in.

What's the worst they can do what the worst they can do is give you a 50% penalty on that money that you didn't take out so you were supposed withdraw 3600. Let's say you're in a 22% tax bracket. That means you would've paid $792 on that withdrawal okay okay but let's say you leave it in there you'll take it out. They set up unit withdrawal pay taxes. Now you owe $1800 because were penalizing 50% on what you were supposed to take out and didn't well so you deftly want to take a nap, yet you want to mess around with you. Well Uncle Sam's giving of his I think we know that there was. They got that figured out, and so no need to try and and maneuver your way around it. I guess that's just something that has to be done so I'm glad you explained it to me now a lot of a lot of people like taking at the end of the year because it basically pays for Christmas. Yeah right. It's like a nice easy timing. All right.

Well were to put this off until December in order take out RMD and alibi the grandkids Christmas presents that my parents, I thought about that already, but we want to be very conscious of situations where maybe you'd be better off to take it out and pay down some debt earlier in the year or maybe have an expense come up, and yet he could really use that money earlier. Let's be conscious of what's going on in your life. Here's another thing to consider. Let's look at where the market is at any given moment. If the market is high, doing great at an all-time high. Let's a great time to sell right in our example we said that your RMD is $3600 okay that's based on last year's end of year balance.

It has nothing to do with what your account balances today. Okay, it's based on what your balance was at the end of last year. So if the market is high will. That's probably a good time to take the money out because were selling high were capturing those gains but take a 3600 out. Maybe that represents 10 shares of Apple okay creates a 3600. What the market crashes and now you have to sell 20 shares of Apple to create the same dollar amount will now were selling low. You shot yourself in the foot by not taking the money out when the market was high so it's just one of those nuances that we want to make sure that we've addressed in terms of the timing of when you take that RMD – I hate when that happens. Many Apple stock is cut in half thinking exactly well well thanks for explaining all that and I think you probably help not only me with a lot of other folks who might be precisely the same situation or certainly if they're not now a might be next year. Or maybe the year after that helpful to know all this stuff.

It can get a little tricky, so any questions you know where to find us there listening to Mr. Stillman's opus with John Stillman of Rosewood wealth management if you like to arrange a time to come in and have a conversation with John called his number 1-800-545-2991. Call or text that's 1-800-545-2991, Carolyn went towards doing business as Rosewood wealth management is a registered investment advisor. Instead for Carolina. The material presented is intended to be general information not be construed by any consumer is the rendering of personalized investment advice