As we are now in the final month of the year, there are so many things to think about. Many people get caught up in “Holiday Seasonitis”. Did I just make that word up? Yes, I definitely did. It is hard not to get lured into the pageantry of the season and it is in turn easy to lose focus on the work you want to accomplish professionally and/or personally before the end of the year. You have Christmas parties to plan for, gifts to buy, presents to wrap, and maybe vacations to plan. The holiday season is a great time to spend time with kid and grandkids, but it also is a time to make sure that you have everything in order going into the new year. Specifically, it isn’t a bad idea to take some free time to ensure you have everything set financially as this year comes to a close. Some things on your checklist may include making charitable contributions before year end or reviewing next years budget. One thing that should be on your list if it isn’t already is making sure you are taking you have taken your required minimum distribution for the year from your pre-tax retirement account.
You cannot keep your savings in your retirement account indefinitely. There comes a point when the government wants you to withdrawal money from your retirement account. That time is age 72. Required Minimum Distributions, or R.M.D.s for short, are not required to be withdrawn from IRAs until April of the year following a person’s 72nd birthday and then they must be sent in by December 31st every year after 1. This includes those who have inherited an IRA from someone who was over the age of 72. Of course, if someone is regularly taking money from their IRA, they won’t have to worry about meeting RMD requirements. The question then that must be answered is what qualifies as a pre-tax retirement account?
I’ll start by answering what is not and the two most common examples of those would be Roth IRAs and Taxable or brokerage accounts. There are no RMD requirements for Roth and Taxable accounts. So, if you are 72+ and have not taken any withdrawals from your Roth this year, do not panic. Owners of Roth IRAs and taxable accounts do not need to take RMDs. The one exception to this rule is that beneficiaries who have inherited a Roth IRA are required to have liquidated the Roth within 10 years of inheriting it 2. This rule also applies to pre-tax IRAs. On the flip side, most pre-tax accounts are required to take minimum distributions. These include traditional IRAs as well as SIMPLE and SEP IRAs within a qualified plan. This also includes other employer provided retirement plan accounts such as 401(k)s, 457(b) accounts that are a part of government employment plans, and 403(b) plan accounts. If you are 72 years old or older and have not taken any withdrawals from your qualified retirement account yet, now is the time to do so. The question that remains is how much needs to be withdrawn? How do you know if you have already hit the minimum?
RMD’s can be calculated by using the accounts balance from the previous calendar year and dividing that by a distribution period table provided by the IRS. There are multiple different tables that are used in different cases depending on who the beneficiary of the IRA is. You can view the IRS’s different worksheets on calculating your RMD here 3. If you work with an advisor, they most likely will or already has contacted you if you need to take an RMD this year. They also will work through how much that needs to be and the process of making sure that distribution is taken out on time. If you are wondering if you need to take an RMD this year, don’t hesitate to reach out to us!
That is the end of today’s blog. We hope you enjoyed and hope you have a great rest of your week!
Content in this material is for general information only and not intended to provide specific advice or recommendations, or a substitute for specific individualized tax or legal advice for any individual. We suggest that you discuss your specific situation with a qualified tax or legal advisor. No strategy assures success or protects against loss.