Today on Retirement Unpacked, Al will talk about “RMDs” or Recommended Minimum Distributions, one of the reasons it’s a little complicated is that the age that it’s required varies based on your age.
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Welcome to retirement unpacked with Al Smith owner of Golden Eagle Financial. You want a retirement plan that alleviates your fears about the future so you know your money will last. As a chartered financial consultant Al Smith will help you find a balance between the risk and reward of the market and the safety of your retirement income. And now here’s your host Al Smith. Welcome to another program of retirement unpacked. I know a lot of you have listened to me over the years and some of you may have only tuned in on a few occasions but you might be thinking well GY should I bother you know meeting with Al Smith or seeking the advice of a financial advisor or something like that. I have a pretty good handle on things here on my own. Well some of the things that I help people with are rather straightforward but some of the thing can move into an area of complexity and I’m going to talk about some of those areas this afternoon and in addition to that I think it’s important to to realize when I sit down and work with people I try to make what could be seen as complicated break it down so that it’s more simple and less complex and it provides some guidance that’s very helpful to people and if you feel like you might be in one of those circumstances whether it’s as you get closer to retirement or if you’re not sure if you’re on track even if retirements are ways away give my office a call at 303 744 1128 and we’ll schedule the time we can sit down have a conversation and learn the ways that I might be able to help. Well two topics I’m going to be talking about this afternoon the first one is required minimum distributions are MDs they are called and most people know what they are you reach a certain age and you’re required to take money out of your IRA or 401k and one of the reasons it’s a little bit complicated is the date and age at which you are required to take those required minimum distributions varies based on how old you are if you were born before 1949 you are supposed to take required minimum distributions at 70 and a half and if you’re already that age you’re over 70 and a half if you were born between July 1949 and December 1950 which is a pretty narrow window you’re required to take those RMDs at age 72 and the other hand if you’re born between 1951 and 1959 you’re required to begin those required minimum distributions at age 73 and if you were born 1960 or later you don’t have to begin taking those required minimum distributions until you are 75 and essentially the RMDs if you’ve not looked at them there’s a regular table and the table is based on life expectancy and I’m not going to read all the numbers on the table but I will give you some idea at age 73 for example the ballpark percentage of the amount you’ll need to take out it’s in the neighborhood of 4% and then as people age that percentage increases by the time people are like 90 years old it’s gone from 4% all the way up to about 9% and it goes up beyond that because again it’s based on life expectancy well what about if you have more than one IRA how does that work do you have to take that percentage out out of each IRA well whenever I give presentations and I pose a question to the audience and I ask something like that usually the correct answer is that depends because often I will ask a question that there’s no specific one answer fits all and the reason that depends it sort of depends on where your IRAs are positioned let’s say for example if you have two IRAs and one of them maybe is in an annuity and the other one is in an investment account and essentially to compute how much your required minimum distribution is you can take that percentage from the table apply it to each of those IRAs and then you will arrive at the total amount that you’re required to take out that year then what isn’t terribly clear is do you have to take it out uniformly out of each one well under that scenario the answer isn’t no so in other words let’s say if you want to take it all out of your investment account and leave the money in the annuity maybe until the next year once you have figured that percentage you can take it all out of the investment account and the same thing holds true for you know the other way around I’ve met people who have as many as three IRAs and when it’s time to take the required minimum distributions you look at the balance that was in the account December 31st of the previous year and that’s the value that you use in order to determine what the RMD is and in investment accounts they fluctuate on a regular basis so it’s rather important to you know keep an eye on that and follow that procedure so sometimes you cannot aggregate your RMDs let’s take for example if you have a plan with a company 401k plan those must be calculated separately for each one and taken separately for each plan and the rule is different for 403b plans those are governmental plans lifetime RMDs for each 403b account must be calculated separately but the total RMD for all 403b accounts may be taken from one of those accounts and another thing is if you have an inherited IRA as well as your own traditional IRA you cannot aggregate those with your own personal IRA another words if you’re with your accountant or something like that and you have an inherited IRA and also a personal IRA you can’t write just one check because those are computed differently and they are separately so again our work are required minimum distribution that cannot that RMD cannot be aggregated with a personal IRA now a lot of people I work with have not only a 401k where they work but they may have an IRA and that could be one they established individually or it could be one that they rolled over from a previous employer but when you have both a personal IRA and a 401k and you reach that age where those required minimum distributions kick in you have to take it out of each of those accounts if we’re talking about a 401k and an IRA and so the important thing is that you understand and know how these rules work and if you believe your situation is a little more complex than you want to work with or deal with or you don’t want to burden your CPA with complexities call my office and we’ll sit down have a conversation we’ll take a look at your IRA or your inherited IRA or your 401k if you’re nearing the ages when those RMDs kick in we’ll figure that out and we’ll make certain that when the time comes you’re taking the right amount out and you’re also taking it out of the correct places because as I say it’s a little bit complex and there’s different different different rules and sometimes I have seen circumstances where people have missed their RMD they for whatever reason time went by and they didn’t take it and one of the most common mistakes with retirement is failing to take out the RMD and the questions people ask about that as well then what do we do if we forgot to take the RMD out well there’s a a couple things the first and probably the most important is identifying the RMD that should have been taken out so if you missed an RMD then you want to be sure and find out what that is and RMDs begin at the RBD which we will call the required beginning date and the penalties that are out there depend on the date at which you missed the RMD requirement and for example the secure act and the secure act 2.0 they affected on how RMDs are treated and how the penalties apply for example here’s someone age 53 and you’re thinking well why would that person have an RMD well this person inherited a Roth IRA from his father in 2020 so when someone inherits a Roth IRA it still has RMDs but not every year the required minimum distribution has to happen by 10 years later and so a lot of different underlying situations here but what people need to do is if they have missed an RMD you can do what they call request a waiver and the way you do that you contact the IRS and the account owner can fill out a form the form is form 5329 and have in the form a reasonable cause for the explanation you know how it happened and when those procedures are reasonably followed the IRS routinely excuses the 50% penalty now they have lowered that 50% penalty after the secure act but if these RMDs were doing going back a few years the penalty was 50% but in any event they reduce that penalty from 50% to 25% and they even reduce that down to 10% with the secure act 2.0 but the point is if you’ve missed an RMD distribution there’s a waiver and if you indicate that you are planning to you know take care of this and do whatever’s necessary form 5329 and you provide a reasonable they want to call it in excuse let’s call it circumstances how you missed the RMD and so forth then they will likely waive the majority the penalty which has been reduced significantly since the the secure act was passed which is extremely important and so remember that the form for that if you’ve missed an RMD is form 5329 so a lot to think about with respect to RMDs for example if someone you know passes someone died and in their estate and their will they leave you there are their their IRA and the same can be true if someone leaves you their 401k but the point is when you inherit an IRA there are different rules but inherited IRAs they have their own required minimum distributions also and the rules for those are also somewhat complex and we’ll talk about those after the break about half of all retired people will need long term or in-home personal care at some point and I’ll Smith with golden eagle financial will help you be ready for it no one wants to think about possible health issues but they can put a big roadblock in your dream retirement plan if you’re not prepared I’ll know how important it is to include a plan for long term care in your overall retirement strategy whether you need it in home provider medical equipment or any other care I’ll get to know you and your goals deeply he gains a comprehensive understanding of your preferences so he can best advise you and make sure you’re prepared for any care that may be needed stay in charge of your retirement by contacting l smith today at klz radio dot com slash money and get your free no obligation consultation so you’re ready for whatever retirement brings investment advisory services offered through brookstone capital management l lc a registered investment advisor bc m and golden eagle financial limited are independent of each other insurance products and services are not offered through bc m but are offered and sold through individually licensed and appointed agents welcome back to retirement unpacked we’ve been talking about required minimum distributions the first half of the show the second half of the show i’m going to be talking about inherited IRAs and inherited IRAs also have their own required minimum distributions but there are a lot of variables associated with inherited IRAs if you have one and you have some uncertainty about the amount you should be withdrawing or if you can wait and withdraw a larger amount at a future date in a lump sum these are defined in the secure act or in the secure act 2.0 which was passed a few years later the secure act was passed in 2019 the secure act 2.0 was passed in i believe 2022 but the point being is if you inherit an IRA the rules are somewhat complex depending on a lot of variables well first of all there’s three kinds of retirement plan beneficiaries for just determining the post death payouts after the secure act of 2019 the first are what are called non-design the non-designated beneficiary that’s where someone is not named by named as a beneficiary but maybe it passes on through the settlement of an estate the next are non-eligible designated beneficiary and the last are eligible designated beneficiaries those would be people who are named and essentially there’s a lot of variables but let’s take this example if the owner of an IRA passes before his required beginning date in other words the owner of the IRA hasn’t been collecting on his RMDs then there’s what’s called a five year rule and there are no RMDs during that five year rule if the owner dies on or after the required beginning date then the required minimum distributions must be taken over the deceased IRA owners single life expectancy and that is these are circumstances for a non-designated beneficiary now there’s something else called a non-eligible designated beneficiary and the rules for this is if the owner of the IRA dies before he begins collecting RMDs then there is a 10 year window if the owner dies on or after beginning the required minimum distributions they must be taken for years one through nine on each year but in both cases the entire IRA account must be emptied before the 10 year rule now the exception to this is if the beneficiary is a spouse and so this gets a little bit complicated as you can see if you personally if you have inherited an IRA and you have some questions about how this is going to work about taking out the correct amount or can you roll this into your own personal IRA these are a lot of questions that people have when I sit down with them and if ever I’m unsure of an answer I have resources that I use that can answer any questions no matter how complex they are and I believe me if there’s something I don’t know the answer to I will admit that but I will go to the resources available to me to find the correct answer and with respect to inherited IRAs there’s a rule for almost everyone that the IRA unless you are a spouse the money must be emptied out of the IRA within a 10 year period for example the secure act has basically says the deadline it’s a 10 year rule that December 31 of the 10th year following the death of the IRA owner and this differs a little bit though if someone dies before they begin collecting their own retired requirement of distribution for example trisha she is age 65 and the beneficiary of her IRA is her son he’s 40 and Todd is subject to the 10 year rule but he doesn’t have to take RMDs every year what he does have to do is make certain that the IRA is emptied of all of its funds by the time the 10 year period has expired now here’s another example this person is age 75 and he dies in let’s say 2023 and this one is a Roth IRA well the beneficiary of this person’s Roth IRA is his daughter she is age 50 she will be subject to the 10 year rule but she doesn’t have to take out required minimum distributions but the entire amount of the Roth IRA must be emptied by the end of the 10 year period and once we once we look at this we can clearly see that Roth IRAs compared with traditional IRAs have a significant advantage because if you convert your own traditional IRA to Roth or part of it to Roth over time and your health deteriorates and you pass on then your beneficiary can hang on to that Roth assuming that it’s a Roth for as long as 10 years without a requirement to take any money out whereas if the same person had his or her own traditional IRA and he or she reached that age there would be required minimum distributions every year so inheriting a Roth IRA is an opportunity to continue have funds grow tax-free to be ultimately used later even on into the next generation at least for Roth IRAs now there is a different rule and this is called the five year rule now Roth IRAs are deemed to have died but let’s let’s say if a Roth IRA owner died and that can trigger a five year rule if there is no designated beneficiary so in other words let’s say if someone has a Roth IRA and they didn’t name a specific beneficiary then instead of that 10 year rule there is a five year rule so if you inherit an IRA not because you are the named beneficiary but because it was distributed from maybe your uncle or your father’s estate then a five year rule applies now in listening to this one of the most important things you can do that doesn’t cost anything is if you have IRAs if you have a 401k and if you haven’t really looked at any of the documents very carefully for a long period check your beneficiary designations and go beyond that and check the contingent beneficiary designations because the terms under which people are under when they inherit one of these financial products it’s different if you inherit it through the passing of an estate or if you are a named beneficiary so it’s it’s not anything that costs it’s not like setting up a trust nothing like that you just want to make certain that the person’s name is on that beneficiary designation I know for bank accounts they have what’s called POD I don’t know too many bank accounts that are attractive places you know for IRAs but I think it’s important to you know to check all of those because when there’s a named beneficiary not only are the rules for RMDs and things of that nature more favorable but then the financial product the financial those funds they don’t go into a person’s estate and a state stake weeks months sometimes even years to be settled because when an estate is named as a beneficiary then the judge and the court in the county where that person lives they determine all the bills that have to be paid out of the estate and if the estate inherits an IRA the estate itself as an entity may pay tax so there’s there’s a lot of reasons to be sure that your beneficiaries are up to date there’s no cost involved you don’t need an attorney just look at the documents of your financial products if you have an annuity look at the document itself if you have an investment account contact fidelity or trial Schwab ask them what they have on record so it’s really important to have your financial documents up to date so that if you leave this world before you before your retirement funds expire the next generation who inherits those funds things will go smoothly God bless you thank you for listening have a safe and enjoyable independence day and let’s continue to pray for our friends in Israel bye now thank you for listening to retirement unpacked with your host Al Smith of Golden Eagle Financial set up a free consultation with Al today at klsiradio.com/money find your purpose in retirement with golden Eagle Financial investment advisory services offered through Brookstone Capital Management LLC a registered investment advisor Vcm and golden Eagle Financial Limited are independent of each other insurance products and services are not offered through Bcm but are offered and sold through individually licensed and appointed agents the opinions and advice on the preceding program are those of the hosts and guests and do not necessarily represent the views of this station Crawford Media Group its staff management or sponsors mobile the state planning with Michael Bailey is next on klsir 560 am and 100.7 FM I’m Jonathan McKean you’re listening to plugged in on klsir am 560 sure it’s hard to keep up with apps our kids love but it’s interesting to see how some of yesterday’s favorites are still today’s favorites apps like snapchat tick-tock and Instagram but how kids are using these apps is definitely evolving take instagram for example we’re scrolling through the feed used to be the biggest draw or time-waster now kids are not only posting less but sometimes even making mini pictures private or only for close friends instagram CEO Adam Asari said teens are spending more time in their DMs and stories than their feed do you know how your kids are spending their time on instagram are you dialoging with them about how they navigate social media for more about the screens in your kids pockets visit plugged in.com/radio I’m Jonathan McKean author parent and generation screen with folks on the families plugged in roof savers of Colorado is looking to add someone to their sales team they are in search of an individual with strong listening and communication skills but also is only interested in what’s best for the customers roof savers would prefer an experienced roofing estimator but that is not required the applicant must have experience working with insurance adjusters and understanding insurance settlements we are a full service roofing company that is there to repair replace or extend the life of any roof residential or commercial to apply for this job opportunity go to roof saversio.com or call 303 710 69 16 this is AM 560 KLC your home station [Music]
