This is the Truth Network. Yeah. Welcome to Finishing Well, brought to you by CardinalGuide.com with certified financial planner Hans Scheil, best-selling author and financial planner, helping families finish well for over 40 years. On Finishing Well, we'll examine both biblical and practical knowledge to assist families in finishing well, including discussions on managing Social Security, Medicare, IRAs, long-term care, life insurance, investments, and taxes.
Now, let's get started with Finishing Well. Welcome back to Finishing Well with Certified Financial Planner Hang Scheil, and we're so excited today. We have. A really interesting, we've talked about this many times. We've never done a single show on it.
It's the required minimum distribution, actually, of your IRA. And you hear this often referred to as an RMD, because it's acronyms that we live in the government world. But it's fascinating when you think about it. Required minimum distribution is a biblical principle. It really is.
And God had it right there in the law.
so that they could see that the idea was that you're not supposed to hoard the harvest. And so what God did was he put in the idea of the sabbatical year. In other words, every seventh year, you weren't allowed to grow anything. And what you had was to be distributed between the poor and the servant and the stranger and to an extent even the wild animals. And this was the required distribution.
And I like that God didn't happen to use minimum in it. The government threw that one in there. But from God's perspective, Right. This was a mandatory distribution. Why?
Why? to teach us That We need to not hoard. And that Essentially, this is the idea of being trained that God will provide, and there's no need. to be hoarding. And so the liberation or the freedom from the fear of not running out.
As you get this process going. And so let's talk about the actual RMDs we got with RIAs. Hans? Yeah, I mean, the first thing to do is to understand it. Yeah.
You know, when we say RMD, I'm very aware with when I'm talking to clients and prospects and people Looking at doing this, you don't know all the acronyms I know. And a lot of times I'm talking to a husband and wife. One of the two of them knows what an RMD is and knows a little bit about it. Maybe a lot about it, and the other one is clueless.
So So RMD is an acronym. It's required. minimum distribution. And so if we go backwards. It's a distribution that you're Forced to take.
Okay. And you know, that's the required. You have to take it. And it's a it's a minimum amount. Because once you're 59 and a half, And older, you can take all you want out of your IRA.
And the reason people don't is they don't want to pay the taxes. And that's understandable. But when you get retired Uh you really need to start distributing some of this money to yourself. paying the taxes. and enjoy just like at work.
But you weren't allowed to just take your work money and just leave it at work. and let it grow tax deferred. I mean you did you your paycheck, you couldn't have done it anyhow. But with your IRA. You've you've been able to not pay taxes on this for or a 401k just a lot of years And let it build, let it grow.
still not pay taxes. And the whole idea is to build up this Glob of money. And then, when you're probably going to come to me, is what do I do with the glob of money? Because now I need to live on it. for the rest of my life and the rest of my spouse's life.
So Um What we're talking about today is what the government requires you to do at a minimum. And it's for your own IRA. We're not really talking about inherited IRAs today. We're talking about the required minimum distribution. From your own IRA.
When I ask people a quiz and say, what age does this start? Um You know, I'd say about half the people can tell me the correct age. Um And about half of them. The other half are going to guess. And many of them are going to guess.
age 70 or 70 and a half when you have to start taking RMDs. Um And that was true before the Secure Act. But the Secure Act Raised this and the Secure Act II to where it's now age 73.
So if you were born. in nineteen fifty nine or younger, okay? Um well excuse me. If you were born in nineteen fifty nine, Or older. or backwards.
The starting age is 73.
Okay, so the government's given you a couple of years. a break here.
So your required minimum distributions are going to start If you were birth year is the letter The third letter in that, 1958, is a five. or a four You got to start your RMD is at age 73. Yep. You're 1960. or younger and younger.
Any one of those, it's 75.
So you've got this window of time if you retire in your sixties. which I'm trying not to do. But if you retire in your 60s, a lot of people retire along about 65, 66, 67. 68 people are working longer, but you know when you stop working and you stop contributing to your ira and now you're going to be retired It's now time. to start thinking about some distributions.
And if you're fortunate enough to not have to take distributions from your IRA, You know, in other words, you've got enough other money and Social Security to live and get by. A lot of people just hoard their IRA and because they don't want to pay taxes. And so Most people are aware that they can't do in this forever, but they're thinking, gee, I got till 75 or I got till 73, so I'm going to. I'm gonna wait. Till then at the very least And what we want to talk about in the show today is How much you got to take at 73 or 74 or 75 or 80, what the RMD is.
But then We want to talk about some reasons you might want to think about pulling some out sooner than that. Make sense? Oh, absolutely. And I think that You know, just being who I am, I never liked the word required. You know, like, I don't want to be required.
But it kind of prompts the idea of. you know, what can I plan around this? You're still going to actually be there at some point with some type of requirement. but you'll actually be managing it rather than it managing you.
Well, yeah, and I can take people at all parts of the spectrum. If I got somebody that's 65. And they have $220,000. in their IRA and they're retired.
So they're 401k.
Well, then they're going to say, Boy, I don't want to take anything out of there till I have to because There's not much in there. If I start taking something out, it's going to be gone. Um so Um At the lower end. I have trouble getting people to start taking pieces of that. Um So then we find somebody that's got 800 grand in their IRA.
Um and then they got their social security that person might be a little easier because they got a substantial amount in there But just by the fact they probably used to make some pretty good money when they were working.
So they're going to need to replace that.
So Those people aren't necessarily that hard on selling them on the idea of taking twenty or thirty thousand dollars a year out of there. to live off of and whittling away at it. Um And then I get the people north of a million bucks. who who a lot of them they're just You know, they've got several million dollars in their IRA or between one and two million dollars. They don't want to do anything.
and they sure don't want to pay taxes. Um and they probably Have a pretty good lifestyle, but they might have a significant social security check. just because they made so much money while they were working Point out is that this covers all spectrums. And just waiting till you hit 73 or 75. to then deal with RM Drees is not a really good strategy.
Exactly. I agree. It's just not. Right. And so Let's take a round number of a million dollars in an IRA or 401k.
This counts, I'm counting all I mean, you know You have money in a 401k and you got money in an IRA, and I'm not talking about Roth money. IRAs have no RMDs.
So if you've already smart enough to get some money in a RAW, you you're not facing minimum distributions at any time during your lifetime.
So you can stow money away in a Roth. It can grow tax-free. And then you can leave it to your kids. text for you can also draw on it yourself and you don't have to pay any taxes. At any point in your retirement.
So, I'm not talking about Roth here. I'm talking about. money you haven't paid taxes on. And I'm going to make the number a million dollars. Just to make the math simple.
And I'm thinking that we need to move to the break. Is that right, Robbie?
Well, we could do that right now. If you'd like, it's a great time to remind you that this show is brought to you by Cardinal Guide, CardinalGuide.com, and at CardinalGuide.com, you're going to find the seven worries tabs. And this today's show would be under the IRA tab, where we talk about required minimum distributions. And so, you're going to find a show along these lines with beautiful charts and links to exactly what the government has to say about these things. It's all there at cardinalguide.com, as well as, of course, Hans's book, The Complete Cardinal Guide to Planning for and Living in Retirement.
And believe me, there's lots and lots. On required minimum distributions in there, that's really, really helpful, as well as the HERC workbook that goes with. Uh the complete cardinal guide to planning for living in retirement and the ever popular contact Tom's or Tom Page, which just, you know. Gets you to a conversation to really get into your individual situation. And so we come back.
We're going to talk more about required minimum distributions. We'll be right back. Investment advisory services offered through Brookstrone Capital Management LLC, abbreviated BCM, a registered investment advisor. BCM and Cardinal Advisors are independent of each other. Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents.
Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency.
Well, welcome back to Finishing Well with Certified Financial Planner Hans Scheil, and today's show. Required minimum distributions are RMDs and So, you know, to me, these always seem like sort of a necessary evil, but in their own way, they're kind of a really just a nice, gentle little reminder of like, man, dude, didn't you save this money for something? They are. I mean, the the government's saying to you, this is a retirement account. You're retired.
you're at 73 or you're seventy five. you now need to start taking money out of this account.
So you can live off it and enjoy it. And frankly, these accounts that have a balance in them replaced pensions. I mean, 40, 50 years ago, people had a pension check every month. They didn't have to worry about this stuff. They'd retire and get a check every month.
Um These can be much sweeter than those. They make for many people they are. And this is the government, Sandy. You can put it off as long as you want. When you get to be 73, it's time to start pulling money out.
And my point is I'm thinking you need to start sooner. Um for for tax reasons.
Now I'll back that up a little bit in the show here. But I'm going to give you some numbers off of the chart because it's interesting. When I start quizzing people, I say, now do you know when your RMDs are required minimum distributions? You know what that age is for you? And then the people that are guessing.
you know, and maybe guessing wrong, guessing right. Almost the next word out of their mouth is, well, how much is that going to be? You know, and it's like, well, I can't tell you that until you give me the balance in your account. And then That that's a good time.
Okay, let's how about how much do you have in there? And we've got to separate the Roth out, just like we said, Roths won't have an RMD. And we need to just get the balance on each person. Because you you only turn seventy three one at a time. a husband and a wife.
So and it's just your account at 73. And I was saying we're going to use a billion dollars just to make The number's easy. But if you're sixty five years old now, And you got a million dollars in there. and you don't take anything out. Until you have to, which is 73, how much is going to be in there when you're 73?
It might be 2 million.
So we're just to make the numbers easy, we're going to plan. A million dollars at 73. You hit a 73 and you got a million dollars. in there. Um It's going to be around 4%.
The actual number is 3.77%.
So on a million dollars, that's 37,000. 700. the year you turn 73, you got to pull out of the IRA. Pay the taxes. which are probably going to be $12,000, $13,000.
and then you're left with $25,000 to do whatever you want with.
Okay. Yep. Now Many people don't have that luxury is they've accumulated this money and they're sixty five They're coming into me. And they're saying, how much do I need to pull out of there? to give myself enough to live to put in combination with my Social Security.
So I'm preaching to the choir to these people because they're starting. They're starting withdrawals now at retirement at 65. out of necessity.
Okay, and then we're going to try to be smart tax-wise. with this And this person you know, might need to pull out $30,000, $40,000, $50,000 a year now. And if they start on that, their problem is a little bit different. Like they want to ask, when am I going to run out of money if I start pulling that money out of there?
So Um And again, we're getting a little bit off subject here, but I want to put this in perspective of who I'm really talking to. People that need to start spending it some of it to live off of in retirement, RMDs are not going to be that big of a problem for you because. you're already taking money out of there and by the time you get there we're going to double check. that you're going to be taking enough and But if you've got a distribution on this million-dollar 401k and you're taking out 40 grand a year now. Um you're going to be fine when you're 73.
unless that thing grows like crazy. Um So At 73, it's 3.77%. At 75, it's 4.77%. 4.07%.
So I generally use a number of about 4%. in your mid-seventies. You can pretty much whatever your balance is worth. Um when you're at that age, every year you're going to have to take out about 4% of it.
Now When you get to be 80. That's really just grown to 5%.
So Um And you get to be 85. you know, it's 6.25%. Still hasn't grown that much. 90 is 8.2%. You know, 100 is 15%.
The government's really not making you withdraw the whole balance. They're letting you leave. And if you have good investment performance of many years, you're going to outperform the minimum distribution, so you're going to have a growing balance even with minimum distributions. And people will say, well, why is that a problem?
Well, it Maybe isn't, but I'm just going to tell you is if you just let this pre-tax build up At the very least, it's going to be a problem for your surviving spouse. Because He or she. Is going to be facing the widow's tax. In other words, they're going to be paying taxes. on this minimum distribution as a single taxpayer.
So the taxes are going to go up. But even if they weather through all of that, it's then going to be a problem for your adult children. who inherit this thing. Because they're going to Just have a lot of taxes due. And there's ways to get around a little bit of that, but it's still a big problem.
to just have this growing tax problem. where you really don't have a plan for it. Make sense? Yeah. Yeah, it's kind of a Yeah.
And I and I saw this again with my own father, and the tax consequences to different siblings as a large part of their inheritance came that way. And, you know, I have one brother who's a CPA and he knew exactly, you know, how to handle that and and he'd handled his other money well. But uh it it it always seems like the the sibling that is struggling the most uh is the one that gets the worst tax situation, right? Oh, sure. and they don't withhold enough.
And then the money's gone. And people that don't have Because let's face it, the beneficiaries are 60, 65, 70 years old, maybe in their 50s. Yeah, the one heir that just hasn't planned their money well. They just don't have any money. And all of a sudden this inheritance comes their way and maybe it's one-third of six hundred thousand dollars, so they get you know, two hundred thousand dollars.
What do you think they're going to do if that's the only money they got going in? How much is the tax? And you say, well, probably 60, 70, 80 grand. Um You know, then they fill out the forms. They only withhold fifteen or something.
Yeah. So they get a big check for $175,000 and that money is gone as. Pretty darn fast. They pay off debts. They always got somebody hanging around that's got some business proposition for them, one of their nephews or something or neighbors or That money is gone.
And then they got a tax bill that they didn't withhold enough. And then a couple years later, They're coming to the other, they're just gone. Yeah. Um You know, my suggestion would be that you would find better money to leave to all of your children. I mean my plan is that way that Uh I don't want to have a bunch of tax encumbered money that I leave to my kids.
I mean, if we all of a sudden died. unexpectedly at a young age, both my wife and me, well I guess it's going to be nice for them to get that money and they can deal with the taxes, but You know, if one of us lives to a ripe old age, My plan is that that thing is going to be the IRA, the pre-tax money is going to all be gone. it's going to be spent and the taxes paid and enjoyed. Um And you say, well, you know, people say, well, how is that good?
Well. What I'm going to do, and I'm going to recommend, is that you would start if you're in your 60s now. that we first of all figure out are you going to need some of this money to live off of.
Okay. you know, starting right away in retirement. Her yardy there.
Well, let's figure that out. And let's get you that money. and let's get a plan together. Um And let's just see where That's going to leave you at 80 or 85 or 90, pulling out X amount of money for. 20 years.
We can project all of that. Pan. if that's not going to put too huge of a debt in it. Let's start doing some Roth conversions.
Now at 65, and we, you know, if you're full retirement age, where your RMD age is 75. You know, we got ten years. where we can Um Do a Roth conversion every year for 10 years, and maybe we could do $50,000 a year. for 10 years And we could have 500,000 of this. converted to Roth by the time you hit RMDs.
And now you've got this tax-free savings account. That's there, you've already paid the taxes. at a fairly low rate because you You know, when you just look at these tax brackets, that's another show. That's why we're only doing 50,000 a year. Um It's not going to cost you a lot of tax on that.
and then you've built up this tax-free account. that we can either draw from or your widow or widower can draw from. Tax-free. or they cannot draw from it and take no distributions. And that could be the money we leave to the kids.
You know, and I know who you're talking about is if your sibling. Robbie had received Um His one-third share of that IRA, and it had all been rough. things would have been a lot different for him. Oh, yeah. It's it's You know, and I was sitting there thinking that that that Roth, if if you had that in that situation and and you had started to do your distributions in your early sixties, it possibly could help you stretch out if you needed to to not have to take your Social Security until you're Older as well.
There are so many. If that money's in a Roth, you just have a lot of options.
Well you do.
Now let's talk before we finish up about Q C D's because The government also has a provision That if you can see it in your heart and in your budget and everything else to give your RMD away.
Now I'm a believer in this. Is that people that really don't need this money to live, but they're not ready to give it all away yet. You can once these RMDs start you can give the whole RMD to the church. And nobody's going to pay taxes. on any of it at all.
You can give it to any qualified charity. And don't go run out and do that. Without talking to a professional, because there's some several steps you need to follow, but if it's done properly, Um You know, like for instance, the person that has a million dollars. At 73. And now they've got to pull out thirty seven thousand seven hundred to meet their RMD.
they could give the whole thirty seven thousand seven hundred to the church. and they're not going to pay taxes on it and the church isn't going to pay taxes on it. and it satisfies the R and D. Isn't that wonderful? Oh man, let me tell you.
And those Q C D's are are you know, it it just shows you that you know, here you you actually were able to build this money, whatever the kingdom got advanced in a way, and and all that that would have been spent on taxes was actually used to Increase the value of the whole thing. It's amazing. Oh, it is. And QCD stands for qualified. charitable distribution.
It's unique to IRAs. You can't do it out of 401ks. We've run out of time before we ran out of show.
Okay. We're going to have to have you go to cardinalguide.com, watch the YouTube along these lines, and the show notes is all there. This subject is amazing and amazing financial planning that you can do around it. Again, you go to CardinalGuide.com, see the Seven Worries tab. There, you're going to see IRAs.
When you look at IRAs, then you're going to see these videos and other shows along these lines, as well as Hans's book, The Complete Cardinal Guide to Planning for and Living in Retirement, as well as the Contact Hans and Tom page. It's all there at cardinalguide.com. Thanks, Hans. Great show.
Well, thank you and God bless you. The opinions expressed by Hans Scheil and guests on this show are their own and do not reflect the opinions of this radio station. All statements and opinions expressed are based upon information considered reliable, although it should not be relied upon as such. Any statements or opinions are subject to change without notice. Investments involve risk and, unless otherwise stated, are not guaranteed.
Past performance cannot be used as an indicator to determine future results. Any strategies mentioned may not be suitable for everyone. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for you. Before acting on any information mentioned, please consult with a qualified tax or investment advisor to determine if it's suitable for your specific situation. Finishing Well is designed to provide accurate and authoritative information with regard to the subject covered.
Investment advisory services offered through Brookstrone Capital Management LLC, abbreviated BCM, a registered investment advisor. BCM And Cardinal Advisors are independent of each other. Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency.
We hope you enjoyed Finishing Well, brought to you by CardinalGuide.com. Visit CardinalGuide.com for free downloads of this show or previous shows on topics such as Social Security, Medicare, IRAs, long-term care, life insurance, investments, and taxes, as well as Han's best-selling book, The Complete Cardinal Guide to Planning for and Living in Retirement and the Workbook. Once again, for dozens of free resources, past shows, or to get Han's book, go to CardinalGuide.com. If you have a question, comment, or suggestion for future shows, click on the Finishing Well radio show on the website and send us a word. Once again, that's CardinalGuide.com.
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