Year-End Planning Tips: Required Distributions

October 24, 2018  | By Kevin Smith

Required Minimum Distributions

You did a great job building up that 401k, but the IRS eventually demands your tax dollars. This applies to people who are age 70 ½ or older by 12/31/2018. It also applies to people who have inherited an IRA from someone other than a spouse. Here are some important notes on the topic…

  • All required distributions must be taken by December 31st. We are actively contacting clients who have not done this yet, but please call or email us if you are unsure of your status.
  • The amount of the required distribution is based on the value of your account on December 31st of 2017. That amount is multiplied by a percentage that is based on your age. The percentage increases each year. (see graph below)
  • The penalty for not taking the distribution is 50% of the required distribution!
  • You have to take the distribution and pay taxes, but you don’t have to spend the money. You can reinvest the proceeds in a non-retirement brokerage account if it makes sense in your situation, or just keep it in cash.
  • Inherited IRAs. If you inherited a 401k or IRA from someone other than your spouse, you must take withdrawals and pay taxes. The good news is that you have choices that allow you to spread out the tax burden over time. We will be happy to explain all of this one-on-one.
  • Qualified Charitable Distributions (QCDs) – this is not a well known feature of the IRS code. If you are 70 ½+ you can distribute up to $100,000 from your qualified retirement account and exclude that amount from taxable income. It is important that the withdrawal be paid directly to the charity.

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Kevin X. Smith, CFA
  |  [email protected]

Kevin is responsible for advising clients for whom he is the lead financial advisor. He also manages the operations and development of the firm, and oversees all of the investments of Austin Wealth Management clients. Kevin is on a mission…Read More

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