Q. I will be 70 1/2 November 2015 and understand I must take a required minimum distribution (RMD). I do have a financial advisor but I want to gather some information before I contact him. Do I have to take an RMD from all annuities and IRAs, or is my obligation satisfied with a distribution from just one account? Also, do I have to elect a monthly or quarterly payment or could I just take a minimum lump sum distribution within the required time frame as needed? I will be receiving Social Security benefits, netting approximately $1,941 monthly after taxes and Medicare deductions, beginning this February. I am presently working a part-time job, netting an average of $275 per week. At this time, I feel I can manage my expenses with that income. I am debt-free and budget for regular utility expenses and property taxes as I have no mortgage, and I don’t need to use the RMD money at this time.
A. Glad your financial situation is such that you don’t need the money right now, but it’s true that you have to take the RMD whether you need the money or not.
First, it’s a little puzzling that you’re not heading straight to your financial advisor, said Altair Gobo, a certified financial planner with U.S. Financial Services in Fairfield. We’re wondering if you don’t trust this person, but that’s a story for another day.
The rules regarding Required Minimum Distributions can at times be confusing, Gobo said.
“Understanding these rules and the impact RMDs have on your retirement account, overall
financial plan and tax situation are critical in order for you to make the proper decisions,” he said.
Although you may not need the distributions to maintain your lifestyle, the RMD rules mandate a distribution after age 70 ½, he said. Specifically, the rule states that you must take the distribution by April 1 following the year after you turn 70 ½, Gobo said.
But of course, it’s not that simple.
“If you wait until then you will have two distributions that year — in your case, the distribution required in 2015 and the one that will be required in 2016,” Gobo said. “In my experience, most people elect to take the distribution in the year they turn 70 ½.”
Michael Maye, a certified financial planner and certified public accountant with MJM Financial in Gillette, said he also typically recommends taking the first RMD the year an individual turns 70 1/2.
As for where you must take distributions, that’s a great question.
“The reader can aggregate all their IRAs to calculate the RMD, and have the actual distribution come from just one of the IRAs,” Maye said. “However, the tax-deferred annuity RMD must be calculated separately from the IRAs and must be distributed from the annuity.”
Maye said the bottom line is that IRA RMDs can’t be taken from a tax-deferred annuity and vice versa.
Also, the frequency of the RMDs is up to you.
“The IRS doesn’t care if the RMD is paid monthly, quarterly or as an annual lump sum as long as it is taken in the year required,” Maye said.
He also says you may want to consider consolidating all your IRAs into one to make the whole distribution process easier.
Maye also questions why you’re not heading to your advisor with this.
“Sounds like it might be time for a new advisor as there is either a trust or competence issue,” he said.
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