Did you know that with certain investment accounts the IRS requires you to take distributions every year? That’s right, required minimum distributions (RMDs) are the annual amounts that must be withdrawn from tax-advantaged accounts such as a 401(k) or IRA (not applicable to brokerage accounts nor Roth IRAs). It is important to note that RMDs are also needed for Roth 401(k)s, inherited Roth 401(k)s and inherited Roth IRAs. The amount is calculated for each account in which a required minimum distribution applies and this amount must be taken out once you turn 72 (this has been increased from the previous age of 70 and a half). 

“Can I take out more than the required amount in a given year?” Absolutely! There is no penalty for taking out more than the required amount, however, there is a penalty for skipping the withdrawal or taking out too little. The penalty is 50% of the remaining amount that should have been removed from the account.  To determine the required minimum distribution, the account’s balance at the end of the most recent year is divided by what’s known as the life expectancy factor (determined by the IRS). Let’s go through a comprehensive example.

Jason is a Lockheed Martin employee and is currently 73 years old with a life expectancy factor of 24.7. His IRA had an ending balance of $500,000 last year. Jason takes out $19,243 from his IRA for this year.

  • $500,000 Ending balance / 24.7 Life expectancy factor = $20,243 RMD for current year
  • $20,243 RMD – $19,243 Amount withdrawn = $1,000 Remainder
  • $1,000 Remainder X 50% Penalty percentage = $500 Penalty

As you can see, the RMD calculation is quite simple, yet a critical number to remember once you turn 72 in order to avoid the penalty. At Strittmatter Wealth, our Lockheed Martin Retirement Specialists let you know when it’s time for your first RMD and will make sure this is taken care of on an ongoing basis.

For more tips like these, click here to sign up for our weekly email blog newsletter. If you would like to get better educated on Lockheed retirement strategies, click here to download our Free Report titled Retire with Confidence: The Top 4 Things You Can Do Now to Maximize your Lockheed Retirement. And, if you want to have face time with a Lockheed Retirement Specialist², you can click here to schedule an appointmentclick here to sign up for our Lockheed Retirement Workshop or click here to just give us a call (817) 210-3444.

Be sure and check back next week for more incredibly valuable information. Cheers!

Disclosures*

Financial Planning and Investment Advisory offered by SWMG, LLC a Registered Investment Advisor.

Lockheed Martin Retirement Specialist is not an official title or professional designation nor is it conferred by Lockheed Martin on any individual or company.

Our Complementary consultation and free report are for informational purposes only and provided free without any obligation to utilize or retain our investment advisory services.

SMWG, LLC is not affiliated with or endorsed by Lockheed Martin Corporation. Our expertise comes from working with LMT employees for several years and helping them to retire with confidence.

Investing involves the risk of loss, including loss of principal. Past performance does not guarantee future results. Investment products are not FDIC insured, have no bank guarantee, and may gain or lose value. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable for a client’s investment portfolio.

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