If you have qualified retirement accounts, unfortunately you’re not going to be able to avoid Required Minimum Distributions (RMD’s).
We have a separate article [Click Here] that describes how these RMD amounts are calculated, but exactly how they can be taken is the subject for today.
The IRS looks at qualified retirement accounts into two kinds of classifications. All company retirement plans belong in one classification and all IRA accounts belong in another classification. The IRS requires a separate calculation for the amount to distribute from each type, but you can satisfy the requirements for each type by taking it out of any account that you wish.
For example, if all of your qualified retirement accounts are IRA accounts, you can take your required minimum distribution from any IRA account. If you choose, you can take the required amount on a pro rata basis from all the different IRA accounts. There’s complete flexibility in which account or accounts you take the requirement from.
If you have money in a company retirement plan still and in IRA accounts, you will need to take the required amount separately. You would need to take the required minimum distribution calculated for your company retirement plan. Then you would also need to take the required minimum distribution calculated for your IRA accounts.
You cannot take your RMD for both your company retirement plan bucket and your IRA account bucket from just your IRA accounts or just your company retirement plan accounts. The IRS thinks of this as two separate pools of money with a separate calculation.Therefore, it simplifies your life when you rollover company retirement plans into an IRA wrapper.
Keep in mind that if you do any measure of charitable giving during your RMD years, current tax law allows you to do “direct charitable transfers” (IRA direct to charity). This gives two great benefits.
First, it allows you to take advantage of your charitable giving to reduce your taxable income since direct charitable transfers are not considered 1099-R income. Many retirees lose this charitable tax deduction with the higher standard deduction implemented in 2018. In this way you get both a higher standard deduction and tax deductions on all your direct charitable giving out of your IRA account.
Second, direct charitable transfers count toward your RMD! Therefore, if you had already been doing charitable giving, by doing it through your IRA account you will now have extra cash flow available in your personal accounts that you used to give from that can be used for another purpose.
Are you taking advantage of direct charitable giving from your IRA account? Feel free to contact me.