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Retirement Withdrawal Strategies

Dec 23, 2015 8:50:24 AM
Author: Scott Hanson

Listen to Scott and Pat explain how Required Minimum Distributions (RMDs) work as they help a caller determine when and how much to withdraw to meet the requirement.

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Read Full Audio Transcript:

Scott Hanson: All right. Let's talk to Arnold. Arnold, you're with Hanson McClain.

Arnie: Yeah, this is Arnie. Hanson, how are you doing?

Scott Hanson: Excellent, sir.

Arnie: I have a couple of questions about the required minimum distribution from tax-deferred accounts.

Pat McClain: Okay.

Arnie: I hate to admit it but I'm going to be 70 and a half in August of next year. My wife is 67, we're both retired, and I have a 457, a regular IRA, a Roth, and my wife has a regular IRA. And my questions are: can I total all of the accounts except for the Roth, calculate the required minimum distribution, and take the distribution from just one account? And when and how does my wife's account fit into the required distribution? And lastly, when does the first distribution have to be completed?

Pat McClain: Great questions.

Scott Hanson: Common questions, great questions.

Pat McClain: Yes.

Scott Hanson: I'm going to answer your last question first. You must start taking distributions no later than the April 1st following the year in which you turn age 70 and a half.

Pat McClain: So for you, that would be April 2017.

Arnie: Okay, that's when I have to start.

Pat McClain: Yeah.

Scott Hanson: Must have a distribution no later than that April 1st. The challenge, if you wait until 2017, you'll be required to take a distribution that first quarter, prior to April 1st. Then you'll be required to take a distribution by December 31st of that year.

Pat McClain: For that year.

Arnie: Okay.

Pat McClain: So you may want to take your required minimum distribution this year so that you don't move yourself up into a higher marginal tax rate.

Arnie: Okay. When I do my taxes this year, I take the required minimum distribution and then I'm set to go.

Pat McClain: Yes. Now, the second question you had, which is, "Hey, if I total these all together and take the required minimum distribution out of just one of the accounts, is that allowable?"

Scott Hanson: No. It is if you had three IRAs, you can do that with the IRAs. But when you have other, previous employer-qualified plans, you've gotta take it from that plan.

Pat McClain: So you said you have a 457 and one IRA or two IRAs?

Scott Hanson: One IRA and one Roth.

Arnie: I have a 457 and a regular IRA, and I think the Roth doesn't count.

Pat McClain: That is correct. That is right, so you need to do one from the 457 and the regular IRA. I do have a question for you. Why do you own this 457s still?

Arnie: The 457 is with the ICMA from the City of Sacramento, and I've had that since 1970.

Pat McClain: And what is the investment inside of it? Do you have the stable value fund, or do you have mutual fund?

Arnie: It's a stable value. Primarily it's a kind of a safe investment. I'm probably...

Pat McClain: I would leave it there. And the reason is, that stable value fund, they're hard to buy, that particular fund, in an IRA. You're not going to get something similar. If you said, "Oh, I have stock mutual funds in there," I would move the money into an IRA. But the 457? Yeah, leave it there. You're fine.

Arnie: Okay.

Scott Hanson: And then, your wife, when she reaches age 70 and a half, you just need to take a distribution from her IRA. There's really no commingling at all.

Arnie: Okay. So I don't have to total hers into...

Scott Hanson: Nah. You can't, there, for sure.

Pat McClain: It has nothing to do with that.

Arnie: Okay. Because it was confusing when I read the...

Scott Hanson: I know.

Arnie: ...IRS publication.

Scott Hanson: Tax code? IRS publication being confusing? That's weird, Arnie!

Pat McClain: So there is one thing I would point out. Check your beneficiary designations on your 457 plan, if you haven't recently. So make sure your wife is listed as a primary, and then the kids are listed as a contingent.

Arnie: They are.

Pat McClain: Okay. I would just check that. And, we have, on our website, MoneyMatters.com, there is a couple articles that speak to this.

Scott Hanson: Yup, and tables and etc. for the required minimum distribution.

Pat McClain: Yeah. So if you need more information go to MoneyMatters.com, or you can call our show whenever you want.

Scott Hanson: Yeah.

Arnie: All right.

Scott Hanson: Appreciate it. Thanks for being part of Hanson McClain. Have a great rest of the weekend.

Arnie: All right. You too, and take care.

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