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Navigating Your Required Minimum Distribution

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As much as you would like to, you can’t keep your money in your pre-tax retirement account forever.

These investment vehicles include 401(k)s, IRAs, and similar retirement accounts. Under the SECURE Act, once you reach age 72, you must begin taking required minimum distributions from your 401(k), IRAs, or other defined contribution plans if they contain pre-tax contributions. In other words, if you didn’t pay tax on the money when it was contributed, you need to take some money out of the account each year so it can be taxed. Withdrawals from your 401(k) or IRA or other defined contribution plans are taxed as ordinary income.

How do you determine how much your RMD needs to be?

It depends on whether or not you’re married, and if you are, if your spouse is the sole beneficiary of your IRA and is less than 10 years younger than you are. For everyone else, the Uniform Lifetime Table can help.

You can use the following formula to calculate a rough estimate of your RMD:

  1. Determine the year-end balance of your account.
  2. Find your age on the table and note the distribution period number.
  3. Divide the total balance of your account by the distribution period. For example, say you’re 72, and your account balance is $100,000. Your RMD may be about $3,906, based on the table.

There are two additional points to remember.

First, Roth 401(k)s and Roth IRAs are not subject to RMDs because they are funded with after-tax contributions. Second, the penalty for not removing enough from your retirement plan to satisfy the RMD calculation results in a 50% penalty on the amount that should have been distributed but was not. Ouch!

Calculating your RMD isn’t tricky, but understanding your RMD’s role in your overall retirement strategy can be complicated. We help clients estimate how much their RMD may be as they are planning for retirement. Then, once clients are in retirement and of RMD age, we help them calculate the exact amount and properly make the distribution. If we can help you too, please let us know.

Want to go deeper? We suggest visiting the IRS website’s page for Required Minimum Distributions.


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Andrea L. Blackwelder, CFP®, ChFC, CDFA® and Joseph D. Clemens, CFP®, EA are the founders and partners of Wisdom Wealth Strategies. Their shared passion is simple: to bring financial empowerment, understanding, and peace-of mind to people who wish to improve their financial future, build wealth for their families, and achieve financial independence. Click here to find out more about how you can work with the Denver Financial Advisors at Wisdom Wealth Strategies.

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