Welcome to the second part of our Required Minimum Distributions (RMDs) insight series! In this video, we’ll delve into a crucial aspect of retirement planning—why Individual Retirement Accounts (IRAs) stand exempt from RMD requirements.
Roth IRAs and Roth 401(k)s, funded with after-tax dollars, operate differently from their traditional counterparts. As the IRS has already received its share of taxes on contributions, Roth accounts offer tax-free withdrawals in retirement, with no obligatory distributions. Savvy retirees often choose a blend of Roth and non-Roth accounts to strategically diversify their tax burdens.
Now, let’s tackle the question: How are Required Minimum Distributions Calculated? Calculating this year’s RMD involves determining the account balance at the previous year’s end and dividing it by the distribution period found on the IRS’s Uniform Life Table. Exceptions exist, such as using the Joint Life and Last Survivor Expectancy Table for spouses over 10 years younger than the deceased account owner.
But what about Inherited Accounts? Yes, inherited retirement accounts, including Roth IRAs, come with RMD requirements. Spousal beneficiaries have multiple options, including treating the inherited account as their own or following specific distribution rules. Non-spousal beneficiaries, on the other hand, can opt for a lump-sum withdrawal or calculated distributions based on the Single Life Expectancy Table.
In the Bottom Line, RMDs may seem intricate, but ignoring them comes with consequences—specifically, a 50% excise tax on the missed distributions. This rule applies to beneficiaries as well, emphasizing the importance of adhering to RMD guidelines.
Thank you for joining us in the final part of our Required Minimum Distributions series. Don’t forget to explore our other retirement topic videos for comprehensive insights.
About Pathfinder Retirement: Pathfinder Retirement is dedicated to assisting individuals in achieving their retirement goals through a range of educational seminar videos and resources. Focused on integrity, compassion, and service, we provide personalized retirement experiences, covering topics like FERS retirement annuity, federal retirement plans, pension plans, and investment strategies. Our success stories highlight the positive impact we have on retirees, offering a sense of security and peace through well-informed decisions and support. At Pathfinder Retirement, we’re committed to guiding you toward a secure and fulfilling retirement.