Following the post-COVID stimulus hangover in 2022, the bull market has continued to run. One of the key factors was the Federal Reserve’s decision to
Required Distributions: What is Your Plan for 2014?
Published Date : February 10, 2014
For those who reached the age of 70 ½ and are required by the IRS to take a mandatory distribution from their tax deferred retirement accounts, the first quarter of the year provides a good planning point to determine the most effective way to satisfy your Required Minimum Distribution (RMD) in 2014.
The most common ways to satisfy an annual RMD is to either take automated monthly withdrawals over the course of the year or to take a lump sum withdrawal at year end. If you are utilizing your retirement account for living expenses, your wealth manager can calculate your annual RMD, divide into it equal monthly payments, and auto distribute the funds as an “income stream”. Alternatively, if you are not reliant upon your retirement account for living expenses, delaying a lump-sum distribution to year-end and extending the tax-deferred growth of your assets would typically be the most advisable course of action. Should you wish to avoid excess commission costs when making a lump sum distribution, the transfer of securities – equal in value of your RMD — from your retirement account to a taxable account is an option.
For those retirement account owners who are charitably inclined, the ability to make a qualified charitable donation (QCD) has historically been an attractive option. A provision of The American Taxpayer Relief Act of 2012 allowed a tax free distribution of up to $100,000 from a retirement account to a qualified charity to satisfy the retirement account owner’s RMD for that year. The Act extended this QCD provision, in place since 2006, to be applied to distributions made in both 2012 and 2013. It is unknown at the time of this writing if the provision will be extended by Congress again for distributions in 2014; therefore, those interested in satisfying their RMD with a qualified charitable distribution should delay any major planned giving until later in the year when it is clear whether this option will exist.
While IRS formulas, which rely upon your age, age of spouse, and account value, inject a high degree of certainty in the RMD process, those who have just reached the age of 70 will be confronted by the somewhat confusing decision of when to start taking distributions. The IRS says that your first RMD must be made by April 1st of the year following the year you reach the age of 70 ½. In order to avoid two taxable distributions in one year, and perhaps unnecessarily boosting both your income and marginal tax rate, most people take their first RMD before December 31st in the year that they actually turn 70 ½. Whether or not you take your first RMD in the year of turning 70 ½ or prior to April 1st of the year following should be a topic of conversation with your tax advisor to determine the best results for your specific situation.
To ensure that your RMD for 2014 is met, and a 50% penalty on the undistributed amount is avoided, please contact your wealth manager to determine your optimal distribution strategy.
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