TRANSCRIPT:
“RMD rules have changed more in the last two years than in the past 20. This means most articles, including those on the IRS’s website, are out of date. Failure to know and follow these rules will cost you 25%, to be exact.
Introduction
Hi, I’m Hunter Brockway, founder of Boca Retirement Strategies, here to help set you up for a successful, stress-free retirement while spending more and avoiding being killed in taxes.
Understanding Required Minimum Distributions (RMDs)
So, what is a required minimum distribution anyway, and why am I required to distribute a minimum amount? The way I fondly put it is: Uncle Sam has given you tax benefits on money that you put away pre-tax, and it grew pre-tax, but his patience can only last so long. He wants his cut of the money, and he’s going to tell you exactly how much he wants.
The good news is that if you’re already working with a spectacular financial planning firm like Boca Retirement Strategies, you’ve got your strategies in place to mitigate your lifetime tax bill, including RMDs. But if you’re still curious to learn more about RMDs, here’s a list of the top 10 mistakes surrounding RMDs.
Top 10 Mistakes Surrounding RMDs
- Rolling Over RMDs
RMDs cannot be moved, transferred, rolled over, converted to Roth, or otherwise put into any kind of qualified account. Don’t listen to the clickbait articles. - Failing to Take RMDs Before Rolling Over Accounts
This is specific to the type of rollover in which the account owner receives a check made out to themselves. - Rounding Errors
If not careful, late-paid dividends, restated account balances, and miscellaneous other accounting items from the custodian can change the official year-end balance by pennies or a few dollars. If taking out RMDs to the exact penny, this could cost you. - Miscalculating RMDs on Annuities
Deferred annuities, anything other than SPIAs, really have their RMDs calculated on the actuarial value of the contract and not the account value. Now, those two numbers can be the same, but this is especially true for annuities with any income guarantees. It is crucial that you use and document the numbers provided by the insurance company and not your own calculations or calculations being provided by any kind of data aggregation software. - Incorrect Aggregation of Accounts
The IRS allows aggregation of certain accounts for the purposes of calculating your RMD, but not all. For example, an IRA versus a 401(k). - Forgetting Tax Withholding on In-Kind Distributions
Transferring in-kind, tax-deferred holdings to a taxable account to satisfy your RMD is allowed, but it precludes you from having taxes withheld. Taxes must be paid from another source. Additionally, as share prices are always moving, it is generally best practice to round up. - Failing to Withhold Taxes
Some choose to pay taxes from another source rather than in their RMD. Be sure you are up to speed on how the IRS views withholdings versus estimated payments versus paying taxes when due to avoid a penalty. - Waiting Until the Last Minute
With the exception of deferring your first year’s RMD to April 15th, all RMDs must be taken by December 31st. However, if December 31st falls on a weekend or due to the holidays, the distribution request may get delayed. Waiting until the last minute could leave you with a missed RMD. Best practice is to plan ahead, sometimes even taking it all in Q1 if that suits you. - Not Tracking QCDs
Using QCDs to satisfy RMDs is a fantastic strategy, but QCDs do not show up on a 1099 and are commonly missed. Tracking and reporting them correctly requires a system. We built an internal system to send to CPAs for this reason. - Waiting Too Long to Plan for Your RMDs
RMD planning starts in your 60s, not in the year your RMD begins. RMD mistakes could cost you up to 25% of your RMD in penalties from the IRS. The easiest solution to avoid this is to work with a professional who can create a forward-looking withdrawal strategy and help craft RMD reports to help visualize your plan.
Closing Remarks and Invitation to Retirement Mastermind Group
I’m Hunter Brockway, founder of Boca Retirement Strategies. If you would like a personalized retirement income strategy to get the most out of your retirement without running out of money, you can book a simple 15-minute phone call on our website at bocaretirement.com or send us an email at contact@retirement.com. Enjoy your successful retirement, and thanks for watching. Bye!
