Spending Monday morning thinking about a required minimum distribution? I was supposed to be out of the office all day today on a mini road-trip with my financial advisor pal, Tony R. As we began our journey to the client’s house, we realized we had a long drive ahead of us. About half an hour into the trip, the client called and needed to reschedule. So we made a quick stop and started our journey back to our respective offices. On the way, I got a message from a prospective client who needs to update their estate plan documents.

Over the weekend, they had been reading some websites and kept running across “RMD”. When they had created their plan years ago, they had not really thought about what would be happening down the road when they retire. But now, retirement is quietly approaching and they wanted to familiarize themselves with the next steps.

What is a Required Minimum Distribution?

When Congress created the tax benefits of retirement plans, they wanted to make sure they were used for the intended purposes. They did not want the plans to become a vehicle to avoid all taxation. In order to make sure this happened, they created the Required Minimum Distribution (RMD). The RMD generally begins at age 70 1/2 (or death if before that age).

Up until that time, you are able to accumulate money on a tax-deferred or tax-free basis. But once the rules for RMD kick in, you are required to take distributions and the rules tell you how much you must take. You must take your distribution by December 31 each year. There is no “maximum” amount of distribution that you can take (well, I guess technically the balance of the account would be the maximum). The rules only dictate the minimum that you must withdraw each year.

Beyond these basics, the usage of the RMD is a complex planning discussion. Everyone’s situation is different and as you approach retirement, you will want to talk to a professional about the RMD and how it will affect you individually.

Next Steps

If it’s been a while since you last updated your will, or if you know you need to revise it and the RMD may affect your plans, call my office to set up a meeting and we can review the best options for you – (877) AMAYERS.