Chapter 2 - Taking a Required Minimum Distribution

Make Plans for Your RMDs

If you are the owner of a retirement account, and approaching age of 70-½, you need to start making plans to take your Required Minimum Distribution (RMD). This requirement will depend on the type of account you own. Some examples of accounts that have RMD requirements are 401(k)s, various IRA’s, SEPs, and Profit Sharing Plans.

Each Retirement Account May Require an RMD

If you have more than one retirement account, each may require its own RMD, and the IRS sets deadlines on when the withdrawals must be made. To avoid excise tax from the IRS, which can be as high as 50% of the amount of the RMD, you must make the correct withdrawal on time. RMDs will also need to be taken if you have inherited a retirement account. The IRS publishes the RMD requirements on their website.

Understand Your Custodian’s Process

Retirement accounts are usually held at a company called a custodian. Some custodians are investment firms, some are banks, others are insurance companies, or brokers. Some custodians are referred to as a trustee or a clearing house. These companies have their own unique process and schedule for RMDs. Start the process early, to make sure things happen in a timely manner.

How to Withdraw the Funds

RMDs can typically be withdrawn out of your retirement account in a lump sum, or a monthly withdrawal. How you receive it may depend on the process of the custodian and what is the most cost effective for transaction fees. The funds may be sent to you electronically, deposited to another investment account, or they may be released as a check and sent to the address on file. Some custodians are very flexible, others may have limited options.

Being Organized Helps and Have an Advisor

The more organized your accounts are in your 50s and 60s, typically the easier it will be for you to take RMDs when you reach full retirement age. The more liquid the asset structure, generally the smoother the RMD process. If your account holds something like real estate, it may be more of a challenge to make an RMD. As advisors, we help our clients manage their RMDs, and assist them in finding a suitable strategy for retirement. Please contact us if you need help organizing your RMDs.

Contact us For Help with RMDs

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Retirement that Works

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