In the year you turn 70 ½ years old, the IRS looks at the balance of your retirement accounts (IRAs, 401k, 403b but not Roth IRAs) and calculates an amount that you are required to distribute as taxable income (called RMD – required minimum distribution). It starts at a little under 4% of the account balance and grows every year. If you inherit an IRA from someone other than your spouse you also have to take the RMD.
(Note: Recent legislation changed the age minimum to begin RMDs to 72. Per the IRS, if you turned 70 ½ in 2019 you should have taken your first RMD by April 1, 2020. If you reached age 70 ½ in 2020 or later you must take your first RMD by April 1 of the year after you reach 72.)
We have a process for simplifying and automating this RMD process, making it predictable and easy for you. There is one-time set-up where we connect your IRA to your bank account and then set up a date where the RMD automatically transfers from your IRA to your bank account. You can also choose to have taxes withheld from RMD and that will be done for you.
Every year, in early October, your broker (Fidelity or Schwab) gives us your current RMD amount calculated for each account we manage for you. That amount is based on published longevity tables* (see below) applied to your account balance as of the prior December 31st. We email you the amount and confirm that you do not want to distribute more than the amount.
In late October, when we rebalance all client portfolios, we make sure the cash required for your RMD is left over after rebalancing your individual portfolio. Why October? History shows that more years the market is up instead of down so by rebalancing and distributing near the end of the year, your money is working for you as long as possible.
Our process is flexible too. For example some clients prefer to have a check mailed to them or transferred to another Rebalance brokerage account and reinvested.
The process will automatically complete – well ahead of tax time. Please see the table below for further clarification on RMDs for IRA accounts.