Required Minimum Distributions (RMD)

April 11, 2024


IMPORTANT DISCLOSURE INFORMATION

The following presentation by New England Capital Financial Advisors, LLC (“NECFA”) is intended for general information purposes only.  No portion of the presentation serves as the receipt of, or as a substitute for, personalized investment advice from NECFA or any other investment professional of your choosing.  Please see additional important disclosure at the end of this penetration. A copy of NECFA’s current written disclosure Brochure discussing our advisory services and fees is available upon request or at www.newenglandcapital.com.

Required Minimum Distributions (RMD)

Today, we’re going to talk about  Required Minimum Distributions -- or RMDs. If you have a tax-deferred retirement account, like a Traditional IRA or employer 401(k), I’m going to answer some of the most common questions we get.

WHAT IT THE PURPOSE OF RMDs?

The great thing about tax-deferred accounts is that you got a tax break when you put money in, and the growth and income generated in that account over years, and maybe even decades, wasn’t taxed. But, at some point, the IRS requires you to start taking money out and paying tax on it.

WHEN ARE THESE WITHDRAWALS REQUIRED?

These guidelines were updated at the end of 2022 and an easy way to remember is this.  If you were born before 1951, you’re over 73 and should already be taking RMD. If you were born between 1951 and 1959, your RMD starts the year you turn 73. And if you were born in the 60s or later, RMDs start the year you turn 75. From that point on, you have until December 31st to take your RMD each year, although you do have a few extra months in your first year.

HOW ARE RMDs CALCULATED?

To figure out your RMD, you need two numbers. The first is the balance of your tax-deferred account on December 31st of the previous year. The second is a number the IRS provides on a life expectancy table on their website -- IRS.gov. You divide one by the other and that’s how much you need to take out of your account that year. And, by the way, it doesn’t matter whether you take the RMD in a lump sum or in chunks throughout the year. The IRS doesn’t care as long as you take all of it by the end of the year.

 WHAT IF YOU DON’T TAKE IT IN A YEAR?

If you miss the deadline for any reason, the IRS charges a 25% excise tax on the amount you missed…Believe it or not, this is the kinder, gentler IRS penalty!  It was 50% up until 2023 … and they’ll drop it to 10% if you correct the problem within two years. So it’s worth paying attention to your start date and deadline.

HOW ARE RMDs TAXED?

These distributions are generally taxed at your Federal and state income tax rates, not at capital gains rates. Keep in mind, these are the basic guidelines for RMDs. There are other rules for different situations, like if you made non-deductible IRA contributions or if you inherited an IRA. So, let us know what YOUR questions are about RMDs and we’d be happy to help.

 

IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance is no guarantee of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by New England Capital Financial Advisors, LLC [“NECFA”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from NECFA. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. NECFA is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the NECFA’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.newenglandcapital.comPlease Note: NECFA does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to NECFA’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a NECFA client, please contact NECFA, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.  Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.