Retirement is all about planning ahead. But when the time comes, there are several new and different steps that need to be taken to ensure you get the most out of your savings. One of those steps is making the most of your required minimum distribution (RMD). If you have been saving for a retirement plan using a traditional IRA or an employer sponsored qualified plan, the IRS will generally require you to start taking annual required minimum distributions once you reach age 70 and a half.

How do you calculate your RMD?

I hear from customers all the time who have concerns about how their RMD is calculated. Since there are potential penalties if they are not taken, it is important to know how RMDs are calculated. The amount is based on the balance of your qualified account as of December 31 of the previous year. There are two ways to calculate your RMD:

  • The Uniform Lifetime Table is used if your spouse is the sole beneficiary and not more than 10 years younger, or your spouse isn’t the sole beneficiary.
  • If your spouse is the sole beneficiary and is more than 10 years younger, use the Joint and Last Survivor Table located at IRS.gov (IRS Publication 590-B).

Why it’s so important to withdraw your RMD

There are some customers who don’t need their RMD funds to support their income and don’t want to take it. It is important to remember that in most circumstances there is a 50% IRS penalty on the amount of the RMD not taken by December 31. So, regardless of whether you want to take your RMD, it is important to know that you should take your RMD each year. There are exceptions to the December 31 date for customers who have to take their RMD for the first time, but I encourage all my customers to have their RMDs done by December 31.

Who can help me with my RMD?

Working with a financial professional can help ensure your RMDs are set up properly. At BTC Financial Services we work with all of customers who have RMDs to ensure they are taking the proper amount for their RMDs. Typically we calculate the RMD and set customers up to receive their RMDs on monthly, quarterly or annual basis depending on the needs of the customer. We also set up Federal and State tax withholding (if necessary) based on the instruction of the customer. Once it is set up automatically, the customer no longer has to worry each year about meeting their RMD and can enjoy the additional income an RMD provides.

I have seen many clients come into my office very concerned about their RMDs and how to withdraw them, and I have helped dozens of customers make their RMD a part of their overall retirement income strategy.

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Jason Egge is a registered representative with Securities America, Inc. Securities offered through Securities America, Inc., member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Bankers Trust, BTC Financial Services, a division of Bankers Trust, and Securities America are separate companies. Not FDIC Insured. No Bank Guarantees. May Lose Value. Not a Deposit. Not Insured by Any Government Agency.