Required Minimum Distributions (RMD’s)

Why does the government care when want you to start taking distributions? Well, if you hold tax deferred retirement assets-this could be SEP, SIMPLE, 401(k), Traditional IRA and other tax deferred plans, the primary motivation is that your retirement nest egg has grown tax free. The government wants the tax.

If you are entering your golden years of retirement, you will need to start thinking about distributions from your tax deferred retirement accounts. The rules are a little odd, if you turned 70 and 1/2 in 2020, or you turned 72 in 2022, then you need to start taking Required Minimum Distributions (RMD). What if you have a roth? The Roth IRA carries different rules and there are no RMD’s on a Roth account.

How much do you have to take? Well this depends on the total of all of your retirement accounts. Generally, you should sit down with a wealth advisor and allow them manage your accounts. You can always take more than the minimum but if you fail to take the minimum it carries one of the steepest penalities the IRS assesses. There are ways around that penalty. If you are in that situation, be sure to speak with a CPA or other Tax Professional that can try to abate that penalty for you.

If you are coming into an age that you will be required to take an RMD but don’t need the cash now, it would be a good planning opportunity between you and your financial advisor as well as your tax advisor, so that those funds are ready when you need them and there may be additional benefits involved.

When do you have to take your RMD’s? Well other than the first year, you need to take it by December 31st. So, make sure you have taken your distribution this or reach out to your trusted advisor. If this is your first year to take an RMD, you could have until April 1, 2023 to take the distribution, in this event I advise caution to make sure you don’t think the distribution you took prior to April 1, 2023 satisfies your 2023 RMD amount.