Whether your clients are ready for retirement income or not, IRS rules require that they start drawing down their savings from certain types of accounts at a certain age — currently the year after they turn 70 1/2 or 72 years old, depending on when they were born. You can use this guide to help your clients solve the required minimum distribution (RMD) puzzle.
We’ll cover key questions about RMDs, such as:
- What accounts RMD rules apply to
- What to do with RMDs if your clients don’t need them
- How clients can get more from their RMDs
- What fixed index annuities can do
- How RMDs are calculated
More about required minimum distributions
In essence, the tax deferrals that most IRAs, retirement and profit sharing plans are afforded don’t last forever1. Of course, navigating IRS rules is never easy. It can be a real puzzle. Known as required minimum distributions (RMDs), the minimum, annual payments will vary in size from person-to-person based on a number of factors2 including your client’s age and account balances in impacted accounts.
To keep it simple, currently any year they end with an account balance in one or more of these accounts after they reach RMD age, they’ll be required to take a minimum distribution the following year. That income could be taken from:
- Their existing Midland National annuity or another company’s annuity
- Some other qualified savings vehicle [i.e. 401(k), traditional IRA]
If they are drawing retirement income anyway, it may not be a big deal, but they may not see these obligations as a positive.
They might still be working, and the additional income could lead to an unplanned tax obligation1 when marginal tax rates would make it more expensive. They may not need the income, even in retirement.
Whatever the case, working with you – their financial professional – and a qualified tax adviser, they can find options to help minimize the impact of RMDs or make the most of them.