Posts Tagged ‘RMD’

The Right Way to Take Your IRA Withdrawals

Thursday, October 15th, 2015

ira withdrawals 1

What most workers are thinking about before retirement is what’s happening now, in their day-to-day lives. What some of those working towards retirement don’t think about often enough is after retirement. The process, the questions, the uncertainty. But Donna Rosato at Time (found on Twitter at @RosatoDonna) has written about that very topic in a piece that was published yesterday, Oct 14th.

Q: I need to start taking my minimum required distribution from my IRA soon. Is there any tax advantage to taking it in monthly installments as opposed to taking a lump sum once a year? —Sherwood Kahmer, Garnet Valley, Pennsylvania

A: There is no tax advantage to taking your required minimum distribution (RMD) in one lump sum annually vs. installments throughout the year. But the timing of your distribution is important, says Mark Copeland, a founding partner at Signature Estate & Investment Advisors in Irvine, Calif.

First, a little background on how RMDs work. At age 70½, you must start taking money out of your IRA and other tax-advantaged investment accounts such as 401(k)s, according to IRS rules. After years of waiting, Uncle Sam wants to collect the taxes you’ve deferred on your contributions. You must take your distribution by April 1 of the year following the calendar year in which you turn 70½. But after that, you can wait until December 31 of each year to receive the money.

You can choose to take the payments monthly, quarterly, or annually. You’ll pay the same amount of income tax no matter when you receive the money. But taking payments earlier in the year is a “lost opportunity,” says Copeland. “The longer you keep the money in a tax-deferred account, the more time your investments grow without the drag of taxes.”

In fact, most people do take the money in one lump sum at the end of the year, says Copeland. You shouldn’t wait till the last minute to do the paperwork though. If you don’t take the distribution by the December 31 deadline, you’ll pay a 50% tax penalty in addition to regular income tax on the amount that should have been withdrawn. A surprising number of people wait to the very end of the year.

You’ll also pay a penalty if you underestimate how much you owe in taxes. Withdrawals from traditional IRAs are taxed as regular income, based on your tax bracket for the year in which you make the withdrawal. How much you must withdraw depends on the account balance and your age. The IRS has a worksheet that can guide you through it. Or you can use a calculator like this one from T. Rowe Price to estimate your distribution (you must take a minimum amount but you can always take out more). To make paperwork easier, you can also have the taxes withheld from your distribution (10% will automatically be held for federal taxes if you choose this option, but you can elect to have more than 10% withheld).

Of course, there may be good reasons to take the money earlier in the year or in installments. Maybe you need it to cover day to day living expenses, or want the consistent cash flow from monthly distributions.

If you have a complex investment portfolio, there may be advantages to taking withdrawals quarterly; consult with a tax adviser.

The bottom line: “You can’t avoid the taxes, but keep what you don’t need tax deferred for as long as you can,” Copeland advises.

Required Minimum Distributions

Tuesday, November 12th, 2013



You may have already received notice from us that its about that time of year again when you may need to take an Required Minimum Distribution (RMD) from your Self-Directed IRA account. An RMD is the minimum amount you are required by the IRS to take from your retirement account each year. You, as the account holder and/or inheritor of a retirement account, are responsible for calculating and taking your RMD on time.  Here are some of the basics. bday cake


If you were lucky enough to turn 70½ years old this year, you need to take your RMD by 4/1, and take it every 12/31 in the preceding years. If you turned 70½  years old last year, you need to take your RMD by 12/31. When it comes to Self-Directed IRAs, it does not matter if you are working or retired, you need to take an RMD when turning 70½.


When you inherit an IRA from a spouse you do not have to take the required minimum distributions; however, its a different story if you inherit money from someone other than your spouse.  Non-spousal IRA heirs must withdrawal the minimum amount each year starting December 31st of the year after the IRA was inherited, whether it is a traditional IRA or a Roth IRA.


To calculate, use your account balance as of December 31st of the prior year and divide it by the account holder’s life expectancy or the inheritor’s life expectancy.   Find the Life Expectancy Chart from IRS.GOV – see Publication 590.

Remember, when you have hard-to-value assets in your Self-Directed account, like real estate, LLCs, Trusts, Private Placements, etc., they need to have a value so you know your full account balance as of December 31 of the prior year.  When it comes to real estate, you need a fair market appraisal completed by a licensed real estate appraiser.  If it’s a non-real estate asset and you need help finding a trusted, reliable person to help with a valuation, let us know and we will send you the name of someone you can contact. Income tax is required on the payout unless  your Self-Directed IRA is a Roth account. Here is the IRA RMD Worksheet for IRA account holders whose spouse is 10 or more years younger and is the sole beneficiary of the Self-Directed IRA.   Please note that this category has a different life expectancy table.  See Appendix C Life Expectancy Table II (Joint Life & Last Survivor Expectancy)


♦   What if I have more than one self-directed IRA account?

›  If you have more than one Self-Directed IRA, you must calculate an RMD amount for each account; however, you may withdrawal each amount from one Self-Directed IRA account.

♦  Who is responsible for calculating my RMD amount and making sure its withdrawn from my account on time?

›  You, as the account holder and/or inheritor.

♦  What happens if I do not take my RMD by the required deadline?

›  If you fail to withdrawal your RMD on time, or you do not withdrawal the full amount you are in trouble.  The amount you failed to withdrawal is taxed at 50%.  You will need to file a Form 5329 Additional Taxes on Qualified Plans (including IRAs) and Other Tax Favored Accounts with your Federal tax return for the year in which your RMD was to be taken from your Self-Directed IRA.  However, your penalty may be waived if you establish that the shortfall in distributions was due to reasonable error and that reasonable steps are being taken to remedy the shortfall.  Simply file said Form 5329 and attach a letter of explanation.  This form and the instructions for this form should only be taken from the IRS.GOV website.

♦ Can a distribution in excess of the RMD for one year be applied to the RMD for a future year?

›  No.

♦  Can RMD amounts be rolled over into another tax-deferred account?

› No.


Once you have calculated your RMD amount, simply complete our withdrawal form so we can send your RMD from your Self-Directed IRA account. Once the form is complete, you can fax (1-877-890-0929), email ([email protected]), or mail it to us (515  East 4500 South, Suite G-200, Salt Lake City, UT 84107). All forms must be turned in by December 31st of the year the RMD is due. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation. Author: Jaclyn Grella 800-454-2649 x1119 [email protected] Find me on Facebook, LinkedIn, Twitter and Google Plus Find Accuplan on Twitter Google Plus, You Tube and Facebook