Tax Talk- Did You Forget April 1st?

Most people consider April 15th to be the only tax deadline they need to worry about, or the 17th if we’re talking specifically about this year. Well if you are withdrawing money from a qualified retirement account then April 1st is not a day you should forget either.

April 1st of the year following when you turn 70 ½ is the day you are required to take a minimum distribution from your tax-deferred retirement account. This is imminently important for those who are currently in that age bracket but it definitely should not be overlooked by those who are several years away. There’s a great article here from Smart Money that covers the basics of what you need to know.

You see, whether you need to take those withdrawals this year or not, any planning you do for the future needs to be done with RMDs in mind. IRAs and such are great for tax deferred saving but when it comes time to convert those assets into retirement income of any kind there are plenty of special nuances that must be considered when planning an income strategy.

First of all, add up all qualified assets and get an idea of how big your RMDs will be. This can be done using some simple formulas mentioned in the article and we’re here to guide you through it if you need to boil it down to exact numbers. Then you need to consider how those numbers match your plan for distribution of assets throughout retirement. Once you figure out how much you’ll be required to take you can design an income strategy that is flexible enough to keep you within IRS rules.

Other than that there are a couple of things that are important to mention…

First, if you are planning on taking systematic withdrawals from a traditional management portfolio then you need to carefully consider how your assets will be affected by a market slump. It will happen and when it does you’ll still be required to take RMDs which will only depress your account further. Do remember when we talked about Reverse Dollar Cost Averaging? It may be well worth another read.

Second, deferred income annuity contracts can be adversely affected as well. If you plan on parking money in a deferred annuity with guaranteed income rider past age 70 ½ you may still be required to withdraw money from your account before you had originally planned. This will decrease the amount of guaranteed income you can expect to take in the future. Tread lightly and take all factors into account before you commit to a long-term strategy with qualified assets.

No matter how you are planning to distribute your assets for retirement income, careful and exact calculations are necessary. I don’t care if you are age 55, 65 or 75 this is something everyone needs to think about. All planning should be done with every known variable in mind. There are plenty of unknown variables to worry about so the last thing you want to do is be blindsided one day by something you should have taken care of long ago.

One thing’s for sure, the day of RMDs is coming so get your ducks in a row now.

Have a great week!

Bryan J. Anderson
[email protected]

Written By

Bryan Anderson

Bryan Anderson is a licensed insurance producer and a career finance specialist. With Mr Pulsifer, he started Annuity Straight Talk to bring his unique views on guaranteed retirement income and planning to a wide audience. He enjoys working with investors around the US from his offices in NW Montana.

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