5 Things You Should Know About Required Minimum Distributions (RMDs) 

While you may not be new to the topic of Required Minimum Distributions (RMDs), there are many rules that come along with them. And, with the passing of the Setting Every Community Up for Security Enhancement (SECURE) Act last year, there have been some significant changes you should be aware of. 

So first, what is it? 

A Required Minimum Distribution (RMD) according to the IRS is “minimum amounts that a retirement plan account owner must withdraw annually starting with the year that he or she reaches 72.” The RMD rules apply to SEP IRAs, SIMPLE IRAs, 401(k) plans, 403(b) plans, 457(b) plans, Profit-Sharing plans, and other defined contribution plans. 

All of that may just look like a lot of abbreviations and terms, but let’s cover the highlights. Don’t miss out on these five things that you need to know about RMDs: 

1.The age at which you have to take RMDs has changed. Our definition of RMDsabove states that the age you must withdraw from your retirement plan is 72, but just lastyear that age was 70 ½ years old. The purpose of RMDs is to spread out the tax burdenassociated with the years of tax-deferred earnings you may have accrued in qualified retirement plans. 

2.You should check with your advisor about your expected tax rate. Because of thisnew rule, your RMDs may become a burden when you reach retirement due to the taxes. The rules differ depending on the type of investments you have along with your age, so it is best to meet with a financial advisor to review your investments and the expected taxes you will have to pay. 

3.Consider reducing your taxes now. You can reduce the taxes you pay in retirement bypaying some of them while you are still earning income or by converting some of yourtraditional IRA investments to Roth IRA investments. This is an especially good option ifyou determine your tax rate will likely be higher once you reach retirement.

4.Your beneficiaries that inherit an IRA after 2020 will now have 10 years towithdraw the entire amount. Under the new legislation, inherited IRAs of individualsthat passed away in 2020 or later will no longer be required to make annual RMDs.However, a non-spouse beneficiary will now have to withdraw the entire amount balancewithin 10 years.

5.Anticipate lower RMDs. New life expectancy calculations will be published in 2022 andthey are expected to show a greater life expectancy. Because of this, it is anticipatedthat the RMDs amount will decrease. 

This project has been approved for use. You should keep a copy of this approved content for your records. FINAL 

In the end, the rules of RMDs are complex and can vary based on several different factors. It’s important to discuss the changes to RMDs with your financial advisor and develop a distribution plan for your retirement. 

If you don’t have a financial advisor or if you would like a second opinion, reach out to our team here at 210 Financial. We specialize in our Retirement Blueprint Financial Review process where we find out exactly where you stand, how well you’re protected, and where to go next. 

210 Financial is an independent financial services firm that utilizes a variety of investment and insurance products. Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and 210 Financial are not affiliated companies. 01124018 – 11/21 

Our firm is not affiliated with or endorsed by the U.S. Government or any governmental agency. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by 210 Financial. 

Content prepared by Austin Savage & Co. 

Additional Sources used: 

https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions#1