Understanding Required Minimum Distributions

Agenda Why Required Minimum Distributions What Plans RMD Applies To When Must RMDs Begin Calculating RMDs Methodology Taxation Penalties Multiple Plans RMDs After The Owner’s Death RMD Reduction Strategies Putting RMDs Back To Work

Why RMDs One of the advantages of IRAs and other qualified plans is the benefit of tax deferral. Tax deferral makes your money grow faster. Your principal earns interest, your interest earns interest, and the money you would have paid in taxes earns interest. As great a deal as IRAs and retirement plans are, they were never meant to be a forever tax free investment. At some point taxes needs to be paid. Required Minimum Distributions state when and how much must be withdrawn, to ultimately pay taxes.

RMD Plans The following plan must take Required Minimum Distributions Traditional IRAs Inherited IRAs* (Traditional, Roth) Simplified Employee Pensions (SEP) SIMPLE Plans 401(k) 403(b) Plans 457(b) Deferred Compensation Plans Other Defined Contribution Plans * In the IRA owner dies and the spouse as the beneficiary makes the IRA their own, it will no longer be considered an Inherited IRA and will follow any RMD Rules applicable to that IRA plan.

When Must RMDs Begin In general, RMDs must begin by April 1 of the year following the year the IRA Owner attains age 70 ½. If the Owner waits until that April 1 date, 2 distributions must be taken in that first year. One distribution will represent the previous year, the other distribution will represent the current year With 2 payments there may be a higher tax liability Subsequent payments must be made each year by December 31 Some plans: 401(k), 403(b) or other defined contribution plans may allow the RMD to be postponed until April 1 of the year following the year the participant retires (Unless a 5% owner)

RMDs – 70 1/2 Example: If the individual turns age 70 by June 30 of 2017, they must begin their RMDs by April 1 of 2018. If the Individual turns age 70 after June 30 of 2017, they must begin their RMDs by April 1 of 2019.

RMD Calculating RMDs The Basic Formula for Calculating RMDs: End-of-Year Account Value Applicable Life Expectancy Factor Unless…

RMD Tables Uniform Lifetime Table – Assumes a life expectancy based on the owner’s age and an assumed beneficiary who is 10 years younger. Joint and Last Survivor Table – Used if the spouse is the sole beneficiary and is more than 10 years younger than the owner. Notes: The designated beneficiary may be changed even after distributions to the owner have begun The beneficiary has no impact on the payment unless the beneficiary is a spouse more than 10 years younger than the owner Once the Owner has died,, the applicable factor will shift to the beneficiary’s actual life expectancy* * See Death & Distribution Rules

RMD: Uniform Lifetime Table Age Factor 70 27.4 86 14.8 71 26.5 87 14.1 72 25.6 88 13.4 73 24.7 89 12.7 74 23.8 90 12 75 22.9 91 11.4 76 22 92 10.8 77 21.2 93 10.2 78 20.3 94 9.6 79 19.5 95 9.1 80 18.7 96 8.6 81 17.9 97 8.1 82 17.1 98 7.6 83 16.3 99 7.1 85 15.5 100 6.7

RMD Taxation Withdrawals will be included in taxable income If there is an after tax balance in the account, the taxable amount will be reduced proportionately relative to the after tax portion An owner can take out more than the required amount If the owner takes out less than the required minimum amount, any shortfall will be assessed a 50% excise tax

Multiple Plans If there are multiple plans subject to RMDs: The RMD must be calculated separately for each plan The required minimum distribution amount can be aggregated and taken from one account: IRAs with other IRAs 403(b)s with other 403(b) accounts with the same employer 401(k)s or other qualified plans cannot be aggregated Inherited Traditional IRAs Can be aggregated if from the same deceased owner Inherited Roth IRA

RMDs After Death When an account owner dies, in the year of death, the RMD would be the amount that the owner would have taken Spouse as the sole beneficiary: Treat the IRA as their own Base RMDs on their current age Base RMDs on the deceased owner’s age at death reducing the distribution period by 1 each year Withdraw the entire account balance by the end of the 5th year following the owner’s death – if the owner died prior to the required RMD beginning date

RMDs After Death Individual beneficiaries other than a spouse Prior to beginning RMDs Can withdraw the entire account balance by the end of the 5th year following the Owner’s death Calculate RMDs based on the beneficiary’s age determined in the year following the year of the Owner’s death, reducing the distribution period by 1 each year. After RMDs have begun Calculate the RMD based on the longer of: The beneficiary’s remaining life expectancy determined in the year following the year of the Owner’s death reduced by 1 each year The Owner’s remaining life expectancy at death reduced by 1 each year

RMDs After Death For Trust Beneficiaries May use the age of the oldest trust beneficiary for RMD calculations if the trust meets certain criteria

RMD Strategies Utilize for living expenses Reinvest Consider Consolidation Easier to manage Opportunity to assess performance Can match account to client’s goals and objectives May be able to add guarantees Consider spending down qualified dollars prior to age 70 ½ If there are tax deferred assets not subject to RMD, let them grow and use the RMD required assets to Utilize for living expenses Reinvest Rebalance the overall retirement portfolio Convert to a Roth IRA Purchase a deferred annuity Purchase Life Insurance or Long Term Care

Putting RMDs Back to Work After RMDs have begun, if they are not needed consider: Reinvesting in a Deferred Annuity Consider Estate Planning Consider Charitable Giving Consider Legacy Planning

RMD Summary Plan Type Traditional IRA Traditional Inherited IRA* Roth IRA Inherited Roth IRA* 403(b) 401(k) or Other Qualified Plan Roth 401(k), 457(b), 403(b) RMD Factor Uniform Lifetime or Joint Life and Last Survivor Expectancy Table Single Life Expectancy Table No RMD Required Single Life Expectncy Table RMD Start Date Age 70 1/2 12/31 of the Year Following the Year of Death None Age 70 1/2 or Year of Retirement if Later** Age 70 1/2 of Year of Retirement, if Later Aggregation Allowed Yes With IRAs Only Yes - With other IRAs inherited from the same person Yes - With Other Roth IRAs Inherited From the Same Person Yes - With Other 403(b) Accounts of the Same Employer No No - 401(k), 456(b); Yes 403(b) *In the IRA owner dies and the spouse as the beneficiary makes the IRA their own, it will no longer be considered an Inherited IRA and will follow any RMD Rules applicable to that IRA plan. ** Special rules apply to amounts accrued in a 403(b) plan prior to 1987.