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RMD Quick Reference Guide

Why It Matters:
  • The first wave of Baby Boomers started turning 70½ in 2016.
  • Required minimum distributions (RMDs) begin at 70½.
  • There’s a 50% penalty for not satisfying an annual RMD.

In a financial world saturated with acronyms like IRA, FINRA, SEC, and NAV, you probably don’t flinch when you hear someone mention RMDs.

But your older clients aren’t necessarily familiar with required minimum distributions. Heck, they might not know an RMD from a Ph.D.

Don’t be surprised to see more questions about RMDs start to come your way in the next several years. The first wave of Baby Boomers started turning 70½ in 2016 and, according to at least one estimate, they have roughly $10 trillion in tax-deferred savings accounts such as 401(k)s, 403(b)s, and traditional IRAs.

As you know, RMDs kick in at 70½ as the IRS starts collecting its money on those tax-deferred accounts. Reviewing the RMD rules in detail might be too much for most clients, but there are a few highlights you can share to get them started.

  • One-time grace period: Remind them the first RMD is due by April 1, 2018, if they turn 70½ in 2017. All subsequent RMDs are due by December 31 each year.
  • Big penalty: There’s a 50% penalty for not taking an RMD on time. That means a $10,000 hit if the RMD was supposed to be $20,000. Clients can request a waiver for the penalty by filing IRS Form 5329.
  • Exceptions: Clients who are contributing to a 401(k) or 403(b) account while working after age 70½ might not have to take RMDs from those accounts. They just can’t own more than 5% or more of the business where they work, and they must also work the entire year to be exempt from RMDs on employer-sponsored retirement accounts.
  • Be charitable: A qualified charitable distribution (QCD) can be used to take the RMD and lower the tax hit. The IRS allows clients to satisfy up to $100,000 of their RMD if they make a donation to charity. The money must transfer directly from an IRA trustee to the charity. Money from a 401(k) or 403(b) account cannot be used as a QCD.

That’s really the tip of the iceberg. When clients start asking about RMDs, let them know they can find more information on Transamerica’s Knowledge Place or directly from the IRS website. And if they’re turning 70½ this year, don’t forget to wish them a happy half-birthday.

Things to consider:
  • Check your book of business to see if you have clients who are approaching 70. That way, you can give them a heads-up about RMDs.
  • Take inventory of a client’s IRAs since RMDs are based on the aggregate total of all accounts.
  • Remind clients that the penalty for not taking an RMD is 50%.

Neither Transamerica nor its agents or representatives may provide tax, investment or legal advice.  Anyone to whom this material is promoted, marketed, or recommended should consult with and rely on their own independent tax and legal advisors and financial professional regarding their particular situation and the concepts presented herein.