Don’t Forget Your Required Minimum Distributions!

Here’s a gentle reminder to be sure your required minimum distributions (RMDs) are executed before the end of the calendar year.

WHAT IS A RMD?
RMDs apply to qualified plan accounts that receive a tax deduction for contributions and tax deferral on income within the account. This includes Traditional, SEP, SIMPLE, and SARSEP IRAs, as well as workplace retirement plans, such as 401(k), 403(b), 457(b), profit sharing plans, or any other defined contribution plans. Your RMD from these accounts is the minimum amount you must withdraw each year.

WHO IS SUBJECT TO A RMD?
Original account owners must begin taking RMDs in the year you turn 70 ½ and each subsequent year thereafter. For your first RMD, you have the option to delay this RMD until April 1 of the year following the year you turn 70 ½; however, use caution. Delaying your first RMD means that in the following year you will capture two RMDs: the delayed first-year RMD as well as your second RMD. This has significant income tax consequences, so please consult your advisor for proper planning.
The rules for beneficiaries (inherited accounts) are a bit more complicated, so please consult your advisor.

MoneyHOW DO I CALCULATE MY RMD?
Your RMD for the current year is the year-end account balance on December 31 of the prior year divided by your life expectancy from the appropriate IRS table. The account trustee will calculate your RMD and report it to you on Form 5498. RMDs must be calculated separately for each account; however, the aggregate of your RMDs can be withdrawn from any single account or combination of accounts.

HOW IS MY RMD TAXED?
RMDs are taxed as ordinary income in the year you receive the distribution except for any part of the distribution that was previously taxed (your basis or non-deductible contributions).

WHAT HAPPENS IF I FORGET TO TAKE MY RMD?
You could be subject to a 50% excise tax on the undistributed amount. Remember, to avoid the penalty RMDs must be withdrawn from your account before the end of the calendar year, except for your first RMD, as mentioned above.

Michael Canet is a Registered Representative with TCM Securities, Inc. and can offer securities through TCM Securities, Inc., Member FINRA/SIPC.

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