Retirement Minimum Distribution (RMDs) Fundamentals – Annapolis and Towson Estate Planning

Most people don’t know the rules about required minimum distributions. Also known as “RMDs,” these are the rules that require investors to make withdrawals from their retirement accounts the year that they turn 70½. However, says Forbes in the article “5 Things to Know About RMDs,” these withdrawals can have a major impact on cash flow, taxes and financial planning during retirement. They are legally required to be taken, even if you don’t need them.

If the RMD is not taken at the correct age, there will be a 50% tax on the amount that should have been withdrawn. Add to that the amount of regular income tax on the sum of money withdrawn, and you have an expensive mistake.

There are ways to soften the impact of RMDs. However, you have to know the rules before you can create your strategy. Having a game plan for RMDs will help save the money you saved for many years, and allow that retirement nest egg more time to grow.

Note that there may be some changes coming as a result of the SECURE Act and the RESA Act, if approved.

Distribution rules that you need to know. The year you mark your 70½ birthday, that is, six months after you turn 70, you have to start taking RMDs from retirement accounts, including 401(k)s. That rule does not apply to Roth IRAs, which generally do not have any RMDs, until the owner dies.

The exception is if you are still working at a company and participating in the company’s 401(k) plan. If that is the case, you may want to roll over all your previous eligible savings into that account, to delay taking an RMD. However, there are also exceptions to this rule. They depend on your ownership stake in the company, so speak with an estate planning attorney to be sure what the requirements are for your situation.

While you’re at it, make sure that the beneficiaries listed on your accounts are correctly documented. If it’s been more than a few years since you last reviewed your beneficiaries, there may be some time bombs hidden in your IRA accounts. Divorce, death and changes of circumstances may make it necessary for you to change your beneficiaries. Do it now, while it’s on your mind. Once you die, there’s no recourse for your heirs.

When do I take my first RMD? RMDs must be taken by December 31st of each calendar year. However, the first RMD must be taken for the year in which you turn 70½. You can delay that payment until April of the following year. If you end up taking two big distributions, will it throw your tax planning off? Will you be bumped into a higher tax bracket? This is why you need to plan your RMD out carefully. It may be better for your overall situation to take the RMD, as soon as you are eligible.

Accuracy counts. You can’t rely on an online calculator, since the rules are not one size fits all. Let’s say your spouse is ten years younger than you and is your sole beneficiary. You’ll need to use the Joint Life and Last Survivor Table. There’s also the Uniform Lifetime Table, but that doesn’t apply here. Check with professionals to be sure you are taking the right amount.

Where does your RMD come from? Even if 70½ is a few years away, it’s good to have a plan for how RMDs will impact the distribution of your investment portfolio. You have options, so you want to make a good choice. For example, do you want distributions to be made in proportion to the percentage of each of your holdings in your portfolio? Let’s say 40% of your retirement investment is in short-term bonds, then you would take out 40% from your investment holdings. Or do you want to take a percentage from specific holdings?

What about charitable giving? Once you turn 70 ½, you can directly transfer funds from a traditional IRA to a charity, which can reduce your tax burden. However, this must be done properly, directly to the charity.

The rules of RMD are complicated, and mistakes can be expensive. Think about your strategy early on, to make sure it’s done right.

Reference: Forbes (May 14, 2019) “5 Things to Know About RMDs”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

For Immediate Release

Contact: Jane Frankel Sims

410-828-7775

Contact: Frank Campbell

410-263-1667

Sims & Campbell Estates and Trusts

Frankel Sims Law and Holden & Campbell
Merge to Form Sims & Campbell

Firm will offer comprehensive Trusts & Estates services through offices in Towson and Annapolis

TOWSON, Md. (April 26,2019)  Frankel Sims Law and Holden & Campbell have jointly announced the merger of their firms to create a boutique Trusts & Estates law firm providing comprehensive services in the fields of Estate Planning, Estate Administration, Trust Administration and Charitable Giving. The combined firm will be named Sims & Campbell and have offices in Towson, Md. and Annapolis, Md.  Jane Frankel Sims and Frank Campbell will lead and hold equal ownership stakes in the firm.

Sims & Campbell will have 9 attorneys and 15 legal professionals that handle every facet of estate and wealth transfer planning, including wills, revocable living trusts, irrevocable trusts, estate and gift tax advice, and charitable giving strategies.  The firm will focus solely on Trusts & Estates but will serve a wide range of clients, from young families with modest resources to ultra-high net worth individuals.  This allows clients to remain with the firm as their level of wealth and the complexity of related estate and tax implications change over time. 

“By joining forces, we have expanded our footprint to conveniently serve clients in Maryland, D.C. and Virginia” said Jane Frankel Sims.  We are seeing some of the greatest wealth transfer in our country’s history, and we want to continue to be on the leading edge of helping our clients maintain and enhance their family’s wealth.  In addition, we aim to serve our clients for years to come, and the new firm structure will allow Sims & Campbell to thrive even after Frank and I have retired.”    

“Jane and I have always admired each other’s firms and recognized the need to provide even greater depth and breadth of focused expertise to help families amass and protect their wealth from generation to generation,” said Frank Campbell.  “Now we have even greater capabilities to make a real difference for our clients.” 

The Sims & Campbell Towson office is located at 500 York Road, on the corner of York Road and Pennsylvania Avenue in the heart of Towson.  The Annapolis office is currently located at 716 Melvin Avenue, and is moving to 181 Truman Parkway in August, 2019.  For more information, visit www.simscampbell.law.