For Some, RMD Deadline Is Fast Approaching
Q: Do I need to take a Required Minimum Distribution from my IRA this year?
A: Yes, while the CARES Act passed last year allowed those past their required beginning date (basically, the year after turning 72) to skip Required Minimum Distributions (RMDs) in 2020, those that qualify need to take an RMD in 2021. If you have taken RMDs in the past, or turned 72 in 2020, you are required to take an RMD prior to December 31, 2021. As there have been significant changes in tax laws the last two years pertaining to IRAs and RMDs, consider seeking advice specific to your situation from a tax professional or wealth advisor. Remember, there are tax consequences any time you take a distribution from your IRA since those distributions are considered ordinary income by the IRS.
Q: Am I required to take a Required Minimum Distribution? Would it ever make sense to leave it in my account?
A: You may be shocked to learn that RMDs are, in fact, required by the IRS. Once you’ve passed your required beginning date, the penalty for failing to take that distribution in a given year is 50% of the RMD amount. So, if you needed to take a $100,000 distribution and didn’t pull out any funds from your IRA for that year, you would conceivably owe the IRS $50,000 in penalties alone. With that high of a penalty, there is no instance when it would make sense not to take your RMD. If for some reason you forget to take your full RMD, you may be able to have the penalty waived provided you can show that a reasonable error occurred, and steps are being taken to remedy the situation. In that situation, a tax professional could help you navigate the process.
Q: Are there any considerations I should make regarding my RMD?
A: Since RMDs are considered taxable income, you may want to consider how that taxable event will impact your total tax bill for the calendar year. You could consider a Qualified Charitable Distribution (QCD) to a charity of your choice to help circumvent taxes on a RMD. In doing so, you’re basically taking pre-tax dollars from your IRA and sending them directly to your preferred charity, thereby circumventing any tax liability to you on the amount distributed. There are some important logistics to consider in making a QCD that are worth contacting your tax professional or wealth advisor about, but it’s much more tax efficient to make that QCD rather than simply donating cash.
Internal Revenue Service
This article is limited to the dissemination of general information pertaining to Mariner Wealth Advisors’ investment advisory services and general economic market conditions. The views expressed are for commentary purposes only and do not take into account any individual personal, financial, or tax considerations. As such, the information contained herein is not intended to be personal legal, investment or tax advice or a solicitation to buy or sell any security or engage in a particular investment strategy. Nothing herein should be relied upon as such, and there is no guarantee that any claims made will come to pass. Any opinions and forecasts contained herein are based on information and sources of information deemed to be reliable, but Mariner Wealth Advisors does not warrant the accuracy of the information that this opinion and forecast is based upon. You should note that the materials are provided “as is” without any express or implied warranties. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision.
Mariner Wealth Advisors (“MWA”) is an SEC registered investment adviser. Registration of an investment adviser does not imply a certain level of skill or training. MWA is in compliance with the current notice filing requirements imposed upon registered investment advisers by those states in which MWA maintains clients. MWA may only transact business in those states in which it is notice filed, or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by MWA with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about MWA, including fees and services, please contact MWA or refer to the Investment Adviser Public Disclosure website. Please read the disclosure statement carefully before you invest or send money.