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Take Your RMD!

By Terry Savage on December 29, 2021

A quick reminder: If you are age 72 or older, you MUST take a Required Minimum Distribution (RMD) before year end from your traditional retirement accounts (not Roth).
The penalty for failure to do so is steep: 50% of the amount that should have been withdrawn!

A few key points:
What number is the RMD based on? This year’s distribution for 2021 is based on the value of your account at the end of LAST year, 2020. So you should have kept those year-end statements so you know the total value of ALL IRA accounts last December 31st.
(And be sure to keep the year-end statements that you will be receiving in January for year-end 2021. They will be used to calculate your 2022 RMD.)

You must add up all of the balances in your IRA from last year to come to your required distribution this year. But you can take the RMD from one or more of your accounts, as long as the total withdrawn meets or exceeds the requirement. Note: Your 40l(k)plan may require that you take an RMD from the plan itself– separate from your RMDs from IRAs.

How do you find the amount of your RMD? Use THIS CALCULATOR at Fidelity. Or contact any of your IRA custodians and they will do the calculation for you — based on the total value of all your IRA accounts at last year-end.

How do I meet the year-end deadline? Just call up your IRA custodian now, do the calculations, and ask them to wire the RMD to your bank account or immediately mail a check.

What about taxes? The smart thing to do is ask the custodian to WITHHOLD taxes from that payment. Just estimate your tax bracket, and since this will be added to your income, have them withhold the percentage based on your tax bracket.

Do I have to pay taxes on this money? Yes, no way around it. BUT there is one exception. If you direct your IRA custodian to make a direct contribution to a registered charity — 50l(c)3 — the money can count as part of your RMD, and you won’t pay taxes on it. There are some limitations so check with your custodian.

What should I do if I have to start my RMD in 2022, because I reach age 72? You can take your RMD at any time of the year, or in a lump sum at the end of the year to keep your money growing tax-deferred as long as possible. Or you can calculate your 2022 RMD in January, after you have your year-end valuation for 2021. Then you can divide by 12, and ask your custodian to send you that monthly amount — MINUS TAXES withheld — every month on a specific date, by direct deposit to your checking account. Treat it as your “allowance” from your retirement account. And remember, if you want to dip in, you can always take more.

What if I have an “inherited IRA”? Immediately contact your custodian. Different relationships of beneficiaries and different years of deaths have different withdrawal rules.

What can I do with the RMD money if I don’t “need” it? You can save it, spend it, invest it in an after-tax account. Or take a look around and notice some people to whom a few hundred dollars would make a huge difference and simply give it to them! No tax deduction for that generosity, but a priceless good feeling in your heart!

REMINDER: Most financial institutions will close early on New Year’s Eve–so act NOW to take your RMD.
REMINDER: Save the 2021 year-end IRA statements you’ll get in January for the 2021 year end valuation.

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