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Required Distributions: What is Your Plan for 2014?
Published Date : February 10, 2014
For those who reached the age of 70 ½ and are required by the IRS to take a mandatory distribution from their tax deferred retirement accounts, the first quarter of the year provides a good planning point to determine the most effective way to satisfy your Required Minimum Distribution (RMD) in 2014.
The most common ways to satisfy an annual RMD is to either take automated monthly withdrawals over the course of the year or to take a lump sum withdrawal at year end. If you are utilizing your retirement account for living expenses, your wealth manager can calculate your annual RMD, divide into it equal monthly payments, and auto distribute the funds as an “income stream”. Alternatively, if you are not reliant upon your retirement account for living expenses, delaying a lump-sum distribution to year-end and extending the tax-deferred growth of your assets would typically be the most advisable course of action. Should you wish to avoid excess commission costs when making a lump sum distribution, the transfer of securities – equal in value of your RMD — from your retirement account to a taxable account is an option.
For those retirement account owners who are charitably inclined, the ability to make a qualified charitable donation (QCD) has historically been an attractive option. A provision of The American Taxpayer Relief Act of 2012 allowed a tax free distribution of up to $100,000 from a retirement account to a qualified charity to satisfy the retirement account owner’s RMD for that year. The Act extended this QCD provision, in place since 2006, to be applied to distributions made in both 2012 and 2013. It is unknown at the time of this writing if the provision will be extended by Congress again for distributions in 2014; therefore, those interested in satisfying their RMD with a qualified charitable distribution should delay any major planned giving until later in the year when it is clear whether this option will exist.
While IRS formulas, which rely upon your age, age of spouse, and account value, inject a high degree of certainty in the RMD process, those who have just reached the age of 70 will be confronted by the somewhat confusing decision of when to start taking distributions. The IRS says that your first RMD must be made by April 1st of the year following the year you reach the age of 70 ½. In order to avoid two taxable distributions in one year, and perhaps unnecessarily boosting both your income and marginal tax rate, most people take their first RMD before December 31st in the year that they actually turn 70 ½. Whether or not you take your first RMD in the year of turning 70 ½ or prior to April 1st of the year following should be a topic of conversation with your tax advisor to determine the best results for your specific situation.
To ensure that your RMD for 2014 is met, and a 50% penalty on the undistributed amount is avoided, please contact your wealth manager to determine your optimal distribution strategy.
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Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.
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All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.
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