Retirement Transition -- Introduction to RMDsSubmitted by Mission Financial Planning on March 27th, 2020
COVID-19 UPDATE: As of 3/28/2020, RMDs (Required Minimum Distributions) can be suspended for 2020 for those who prefer to leave that money invested. Roll-back and Roth conversions are available for distributions already made in 2020.
It almost seems like yesterday that you graduated from dental school. You spent the next few decades growing your practice and investing in a retirement portfolio, knowing one day your hard-earned money would support you through your retirement.
You may not know when your official retirement will begin, but whatever your age the time to start thinking about withdrawals is now.
If you’re planning on working for a while, thinking about the tax treatment of future withdrawals will help you determine what kind of contributions to make now.
If you’ve retired, you’ll be thinking about how to create income to replace your paycheck, and which investments to pull money from.
But as you near age 72, you’ll need to consider the withdrawals you are forced to take - the Required Minimum Distributions (RMDs) from your IRAs. We have a series of articles that can help you navigate that process.
Withdrawal age thresholds changed at the end of 2019 with the SECURE Act. Now, once you reach the age of 72, you are required by the federal government to withdraw a certain amount of money from your IRAs or 401(k)s every year--this amount is your Required Minimum Distribution or RMD.
COVID-19 UPDATE: As of 3/28/2020, RMDs can be suspended for 2020 for those who prefer to leave that money invested. Roll-back and Roth conversions are available for distributions already made in 2020.
The amount you must withdraw depends on a number of factors, but to explain it simply:
IRA balance ÷ your statistical life expectancy = RMD for that year.
Since this number is based on life expectancy and account balances, your RMD changes from year to year.
Looking for more information related to RMDs? Check out Mission Financial Planning’s additional RMD articles including:
- RMD Basics
- Thinking About RMDs Before You Turn 70
- How RMDs Work In Real Life
- Special Situations – exceptions to the rules
- Making Charitable Donations with your RMD
- What Happens When You Forget an RMD
- RMDs for Business Owners and Employees
Special rules apply to RMDs regarding timing, aggregating IRAs, charitable contributions from IRAs, and beneficiary IRAs. Advice on management of RMDs is one area of Mission Financial Planning’s expertise.