IRA Correction and Questions

Question: In your Herald article on Thursday, September 29, 2016 I feel you made errors in regards to the dates the person would be required to take the first distribution. Am I correct?

Answer: Whoops!  You are right.  I had my years wrong.  To fix the mistake and not confuse anyone, I am going to reprint the entire question with the corrected dates below.

Question: I am turning 70 next year and am pretty clueless on the requirements and factors for required distributions that the IRS will make me take from my IRA. Can you give me some guidance on how that works? When is the latest I have to start withdrawing if my 70th birthday is 10/15/2017?

Answer: The rule is that you must take your first required minimum distribution (RMD) for the year in which you turn 70 ½ (seventy and one-half), and you have until April 1st of the following year to take it. If you wait until the following year you will have to take two distributions that year.  Since you turn 70 ½ (seventy and one-half) in 2018, you are required to take your first distribution by April 1, 2019. However, if income tax is an issue, consider taking your first distribution at any time during 2018 so as not to double up in 2019.

Question: I have three IRAs.  My RMDs for these IRAs in 2016 are $3,000.00, $5,000.00 and $8,000.00.  Can I take the sum ($16,000.00) from only one IRA and nothing from the other two and still satisfy my RMD requirement for 2016?

Answer: Yes.  The IRA rule is that you must calculate the RMD separately for each IRA but you can withdraw the total amount from one or more of the IRAs. The rules work the same way for 403(b) account owners.  If you have IRAs and 403(b)s, you must take the RMD for the IRAs from the IRAs and the RMD for the 403(b)s from the 403(b)s.  For other types of retirement plans, you must take the RMDs separately from each plan account.  This includes 401(k) accounts, so you if you have 2 or more 401(k) accounts, you must take the RMD for each account from that account.

Question: I work for Flintstone Security Systems Inc., a company I founded 30 years ago.  Since then, I have added 3 partners and now own 30% of the company.  I turned 70 ½ this year and will continue to work.  I have been a steady contributor to the company 401(k) retirement plan and will continue to contribute every year.  Now that I have reached 70 ½ do I have to take required distributions, even though I am still working?

Answer: Congratulations on starting and growing a successful business.  401(k) participants who own more than 5% of their company are required to take annual required minimum distributions even though they are still working.  It doesn’t make sense or seem fair, but that’s the law. 

 

Kenneth B. Petersen CFP®, EA, MBA, AIFA® is an investment advisor and Principal of Monterey Private Wealth, Inc., a Wealth Management Firm in Monterey.   He welcomes questions that you may have concerning investing, taxes, retirement, or estate planning.  Send your questions to: Ken Petersen, 2340 Garden Road Suite 202, Monterey, CA93940 or email them to ken@montereypw.com.