Spring break is almost here, which means our house is about to get a lot louder and a lot more fun. My parents and my sister are coming down, and we’re really looking forward to having everyone together for a few days. They should arrive just in time to enjoy the beautiful Florida weather, and my sister is staying on the beach, which will be especially nice. Senay is also coming home from college for a bit, so it will be one of those rare stretches where the whole family is under the same roof.
Dalanee's radiation treatments ended a month ago, and she is working to regain her strength. She was in the kitchen making French toast yesterday, which made us all happy.
Below you can see what happens when Mom leaves. Desmond and Penny stand in position for up to thirty minutes.
RMDs (Required Minimum Distributions) didn’t always exist. But at some point
The government basically said, "Fine. You can deduct contributions and let it grow tax-deferred… but eventually we want our cut."
That’s why RMDs were created in the early 1970s when IRAs became more popular. They didn’t want people building giant tax-deferred estates. So RMDs are really just the IRS saying. "Okay… show’s over. Time to settle up."
The rules keep changing (and probably will again).
Many of you remember when RMDs started at 70½.
Then it moved to 72.
Now it’s 73.
And under the current law, it goes to 75 in the future for people born in 1960 or later.
So if you’re confused, you’re not alone. Even advisors have to keep checking the rulebook. What does that actually mean in plain English?
It means the IRS wants you to start slowly withdrawing money from your retirement accounts so they can finally tax it. They feel that they have been very patient.
Here’s roughly what you should expect.
At age 73
You’ll need to take out about 3.8% of your retirement account (and pay taxes on that amount)
Age 75
Around 4.1%
Age 80
About 5.3%
Age 85
Roughly 6.8%
Age 90
Close to 8.8%
The older you get, the faster the percentage rises. This is based on life expectancy tables.
A few important things people don’t realize:
You do not have to spend the RMD.
You just have to withdraw it.
You can move it to a brokerage account and keep it invested. I find a lot of people just throw it in the bank, and it stops growing.
If you forget to take it, you are penalized 25% of what you would have withdrawn. Ouch. For our clients, we keep a close eye on this for you.
Also, if you have multiple IRAs, we can usually take the total RMD from just one account. That makes life easier.
If you are charitably inclined, you can send RMD money directly to a charity and avoid paying tax on that portion. It’s one of the few small gifts the tax code gives retirees. So if you were to give $1000 to charity from your RMD, you could save $200 or more in federal taxes. We can help you with this if it catches your fancy.
Don't let RMDs scare you. They are relatively simple once you get used to them.
Be Blessed,
Dave