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Calculating Your RMD

Finishing Well / Hans Scheil
The Truth Network Radio
March 13, 2021 8:30 am

Calculating Your RMD

Finishing Well / Hans Scheil

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March 13, 2021 8:30 am

At age 72, the government makes you start making distributions from your IRA and 401k. Hans goes over why you should think about required minimum withdrawals instead of required minimum distributions in your 50s and 60s. 


Don’t forget to get your copy of “The Complete Cardinal Guide to Planning for and Living in Retirement” on Amazon or on for free!


You can contact Hans and Cardinal by emailing or calling 919-535-8261. Learn more at 

Finishing Well
Hans Scheil
Finishing Well
Hans Scheil
Finishing Well
Hans Scheil
Rob West and Steve Moore
Rob West and Steve Moore

Because this Roy Jones with mental radio podcasts. Our mission is to break down the walls of recent nomination, your chosen truth radio broadcast will be starting in just a few seconds. Thank you. This is the Truth Network welcome to finishing well brought to you by Cardinal guy, certified financial planner long shy best-selling author and financial planner helping families finish well for over 40 years of finishing well will examine both biblical and practical knowledge to assist families in finishing well, including discussions on managing Medicare IRA long-term care life insurance and investments and taxes. Now let's get started with finishing well welcome to finishing well today show calculating your RMD know that means in your to be glad you listen that's good and I was thinking you know I was.

I love Christmas movies that are actually watching me around and request are still very prevalent right now.

No, why was cyclical that I watched a whole bunch of them and I I watch this one. It was a Christian Christmas movies so I did not expect this to happen, but at the very beginning of this movie. This older man was describing his relationship with Christ Jesus you know I think I finally got enough done. Do I feel comfortable on the make it into heaven, and he said I've had enough done for the church is what he said that I feel comfortable on a make it into heaven and I thought oh my goodness, this poor man. He thinks he has a required minimum import of the gunboat's contribution to CRMC required minimum contribution in order to make it into heaven and and so let me just say that the onset of the show went when it comes to heaven, that there is on your part. No required minimum contribution there is on the part of Jesus's merit by key he paid it all okay all to him I/O the only way I can. I get to heaven is based on what Jesus did not. What I did.

So don't but the RMC today's joke confusion whatsoever that that I hope you know what I'm talking about that in order for us in order to spend eternity with God. We do have required minimum we get that through the merit of what Jesus did on the cross, literally taking my sins on his and so that I have noted the required minimum once I accept what he did so is not on me is nothing that iron it's a it's a gift, and it's from God.

However, the IRS has a different view on RMD and so this is our expert and certified financial planner on child. Help us with so Hans, what is RMD RMD is required minimum distribution and that would be from your IRA or your 401(k) so and they start now at age 72, so we didn't have any RMD's are required minimum distributions in 2020.

Because of the coronavirus relief. We everybody was given a free pass for the whole year when they didn't have to take required minimum distributions and then in the year before that they raise the age to words now 72 so all that history you don't need to worry about is now 2021. If you're 72 or older you turn 72 during this year 2021. You need to take your first minimum required minimum distribution of your older than that. You need to take every year you need to take your required minimum distribution of your IRA so were to talk about that a little bit in the calculation of it is really the simplest part is really understanding. Like why it's there.

What are the ramifications of it. And if you've waited until 72 to put together a plan and then your plan is just to comply with the IRS. You really on the government's plan and they like the plane so were more than just talk about that today is help you understand required minimum distributions why they're there and how to make these work to your best bet right and so if you're 72. Wow a lot of those people are mad about this deal so you might like. What are they doing to me and making me distribute this money and it it all in a number of them are mad.

Years later, another 7677 78 and were taken men as a new client. Maybe there an existing client and were just updating things but were finding out about all their money and find out where it is what is invested in how much is in an IRA where the mother counts and then people yeah they make me take money out of that every year and you have to pay that tax out really like that are upset about okay and I don't try to make him on upset that you know what what what I'm perhaps we can do is explain. Like why it's there. What why the government put that in there is keep in mind, you haven't paid any taxes on this money for your whole life since you started making deposits way back in your 20s and 30s. This is avoiding tax or postpone taxes without really amounts to, and were only talking about traditional IRAs and traditional 401(k). If you have a Roth IRA you got no minimum distributions. There's no required distributors rights of the idea of required minimal distributions really is the government saying at some point you are going to tax for this and so we might as well start small but deeper was deeper than it did get the government is saying you know you can get text, but they're saying you need to create an income from this you know 72.

So if you're not retired yet working to call you retire and then they make you distributed over your life expectancy so you still print out a pretty long life expectancy of 72 or the government got like 24 years so there to make you take whatever the balance was at the end of last year divided by 24 and you know whatever that number comes out to be.

You're gonna have to withdraw that no remember you're getting this money you're not sending it to the government. Your it's being distributed to you. It's like a force distribution I think is people don't have pension selected and this was, like, okay, your pension needs to start pacing need to start taking this in common thing that's on this since it hasn't been tax. However, this is your money and you can go invested in other instruments for yet every year it starts a little less than 4%.

The example we had in the blog.

We wrote about this was person that has 100,000 divided by whatever your life expectancy somewhere around 24, 25 equals like 3.95% was 3900 and some dollars, almost 4% is what you gotta pay yourself. So remember you're getting this money and then it's can be added to your income so you don't have to pay some tax on now people that pretty much live off their Social Security and maybe a little other income or little other investment income. Many of them when they take this minimum distribution. There still are no tax because if they have a small IRA but the people with the bigger IRAs and have other income sources and pensions and just other investments were there showing a lot of income will then they got pay a lot of this tax on this required minimum distribution and they're gonna pay a lot more tax in the years to come if they stay the minimum, and they're still keeping that current tax at a minimum that ultimately didn't have a big balance in their IRA and then when they die and they leave it to their kids, which is where it ultimately is going to end up made with the spouse first and then the kids, there's a big balance. What you think the kids want to know when I talked to him after his death, though the beneficiary of an IRA target. Yeah and say well you know you can get this much, which is all the money that's in there for their share$200,000 or you can spread this out over 10 years. Just take 20,000 a year and then you have a small tax how much taxes you have to make down the whole $200,000 what you tax rate now must you may know if the kid makes 100 grand a year 80 grand a year and he's in the 20% bracket or you add 200 grand. All in one year. To that bracket and so all you too much into the calculation on that but a lot of the kids are just can say okay so is 200 grand minus the say 80 grand means I can have 120. Now take the money and run.

Yeah this many kits or send me a check northern middle-age. I get kids to educate bills to pay.

Really glad dad loved to start worried about they granted tax so my overall advice is to try to reduce your IRA balance your traditional IRA balance over your lifetime in smaller amounts or smallish amounts may be larger than the minimum. Maybe start earlier than the minimum start in your 60s so we can make these amounts smaller so that you finish the game. You finish your life in late. Leave it to your kids and you have a very low IRA Bell. Even if you put this money over in a taxable account because your kids are going to receive all of that for your heirs or whoever they are tax-free clients of the kids now see how much is in there. How much is in everything is countless hundred and 80,000 how much to get well on a 90,000 right and what the tax liability on that nothing absolute so so if we take this back to the here and now.

What I want to teach you about RMD's and you can get some of that read my books and watching the videos that we have a cardinal and listen to the show wanted teach about them. But then, more importantly, I wanted to talk to you about the importance of having a distribution strategy. You could call it a withdrawal strategy over your lifetime and I'm not going tell you what that should be or what it ought to be a minute to figure out what you need and what you need this money to do much of you need to live on my overall goal that I'm in advise you of is to have a low boorish lower balance in these IRAs at the end of your life just to prevent them from getting gobbled up with tax so no doubt we are talking today about IRAs and that RMD meaning required minimum distribution so you maybe got those two things down. I hope you do there in Hans's book the complete cardinal guide to planning for living in retirement. One of the seven worries tabs IRAs which is what were talking about today so I have to do is just email Hans voted cardinal and get that information. If you send that out to you first got a lot more on calculating your RMD day on day two. Hans and I would love to take our show on the road to your church and Sunday school Christian or civic group. Here's a chance for you to advance the kingdom through financial resources and leveraging Hans expertise and qualified charitable contributions veterans aid and attendance IRA Social Security care and long-term care.

Just go to cardinal and contact Tom to schedule a live recording of finishing well, your church, Sunday school or civic group contact contact cardinal that's cardinal welcome back to finishing well, a certified financial planner on child today show calculating your RMD which we now know as required minimum distribution from your IRA.

But I like word that you use even better is not a required minimum distribution but didn't it in your own money. I mean it isn't leaders use receiving your own money or distributing it to yourself when you're doing an RMD required minimum distribute distributing the minimum to yourself in order to pay the minimum tax year that out of folks. A lot of them have use their IRA as a savings account and was really never intended to be a savings account. The lion share their money is in desire, and their want to keep it there and I want to pay tax.

That's all fine and good but if that's their main thing of savings if they had an emergency come up and they all of a sudden needed 30 grand to pay for something they don't have to draw out 40 or 50 to pay the taxes to net 30 and then the 40 or 50 is going to be added to their income for that year and is going to totally throw a retirement plan that we put together in the wax out first of all, not everybody in their 60s as the luxury of waiting till 72 to make withdrawals from their IRA. Love you folks. You need the money. That's where you come to us.

You need an income from that thing so we start on a lot of distribution plans for people in their 60s.

That's the word you use so you instead of RMD are MW like required minimum withdrawal there you go yeah right yeah and so were to start an income plan where they're just going to get a set amount of money right out of their IRA. It's a withdrawal it's not a required withdrawal with their budget and their banker requires because they need the money to live on top of the Social Security check those folks you by the time they get to RMD's. They've already drawn it down a bit in their drawing much more than the RMD because they're living off so they don't really have a problem with all this. We always need to check and make sure they're taken now. I'm talking about the people. The just want to postpone taxes.

That's where their money sitting in they really think that they're accomplishing something great by just building up this money than ever pay tax on both commentaries, the IRS is going to get their money sooner or later, and they very well might get from your from your heirs or your children to get the money out there to get the tax money and so was a wiser strategy is to have a plan to have a strategy and start now to start small and just depending upon where your income is much Social Security we can come up with an amount that's going to start drawn this thing down. Maybe that's 10,000 a year. 5000 a year.

Maybe it's $30,000 image depends on how much you got what your income is and what your tax returns can look like. Year after year after year in your 60s by drawn this money and so we we got several thresholds we look at but the whole point is you wanted to have a declining balance in your IRA you want to start that declining balance before 72 Nasser even people that are in their late 50s again.

So when you when you you can't do until 59 1/2 late late 50s late late late late late 50s and there are some ways around that. But you know and I don't really recommend doing it before you retired so if you're still working in your 60s. I don't want you to read that as a blanket recommendation so you quit and contribute and accumulate. But that they could be contributing changing over to a Roth IRA size of this book, but even that's going to be a withdrawal okay so that's where I was going to get into next is so when we start withdraw this money in our 60s if we don't need it to live on what we do with it what we certainly don't spend it going. One option would be to pay the tax which you gotta pay the tax and then what's left. We just save it could save up for something. The other thing we could do is we can could divert it to a Roth.

We can't convert RMD so when you get off to 72. And you gotta take that minimum you. You can't convert your RMD is at somewhere done work, but if you're before then and you take a withdrawal or distribution even if it's systematic we could convert that amount to a Roth, so it's still in the bank and your income is still not taxable. It still not can be taxed is never to be taxed is not in heaven. RMD either and you can target have to pay taxes on that one in your noggin have pay taxes if you need it when you're in your 70s or 80s or 90s.

Yeah it's it's a beautiful so that's one option actually is to us as the first option was to put a savings account save up for something or some type of investment.

Second option would be to put it in a Roth characterizes as a Roth stripping the tax.

Now you get this money with tax-free accumulation and tax-free spending.

It worked tax-free, willing it to kids is good money to leave kids as Roth IRAs and then 1/3 option would be to buy a life insurance policy and the premium could be the amount of these early withdrawals and then you just moving it into the life insurance to help pay the tax so we could move the net amount after we pay the taxes just we can figure all that out and then your in your now building cash value in an account, you can make a withdrawal from if you need it for something like a hybrid long-term care. You do all kinds of things. But if you do nothing which is a lot of people do nowadays pay the premium on the life insurance and you know maybe that stops after a number of years is limited, pay life, and then they die and then their children get that whole amount tax-free. So there's all kinds of things we can do with this stream of income or these withdrawals were distributions with the IRA starting in your 60s.

That is just smart, so that by the time you get to 72 you get a plan in place and just keep doing so that's one thing I want to get across. We have a client that is not a new client, but there there.

They've been with us for a number years and so here's the scenario is they have about $400,000 of her IRA that we are managing over on the investment side. She's now moving this annuity this maturing that they put 280 grand in their 12 years ago and it's now worth about 650 grandson is over with and so they don't pay all the taxes they don't want to spend that they don't want another annuity syringes move in that now you have about a million bucks in her IRA and she 72. So were doing that distribution about 40 grand so she's going to have to pay taxes on that for you as you absolutely don't need the money have very high income. Both of them do.

And so still working and has very high income professional job and she so I explained to her what a Q CD qualified charitable distribution.

So once you get the minimum distributions you can now just donate the whole minimum distribution up to 100 grand a year. You can donate to the church and you never pay taxes on. You can even use it in replacement of your other giving strategy and just so happens that this person gives $100,000 a year to the church in missions and other qualified charities was mostly the church and that's your goal every year and she's a really good follower and ties and all Acosta and I just showed her.

I said, you know, if you give that whole hundred grand through the IRA is just like getting a fulltext thick as you think I can pay tax on instead of giving it out your other money or your income, and then I showed her I said you really not getting the full tax benefit when you given the hundred grand on your income and then you take it off your taxes and I just got her to trust me on that. You're not getting the full tax deductible benefits, but if you do it through a Q CD you are so nasty doing that but I said then you can't give it in the plate every Sunday or whatever you've Artie given some money so far this year, so I know how we want take all that into account with times and figure it all out. The point I want to make is, once you get to minimum distributions and after we calculate them. You can give this money away, even if it's in replacement of your other giving and I get the tax benefit that's really cool. Now her husband is like 77.

He's never taken a minimum distribution out of his IRA insistence that there these people been sleeping through a number of things is there very well to do their very dizzy business people and so he's got some real real issues there because you know where I have to go back and calculate the minimum distribution every single year back to when he was 70 1/2 calculate what it was and then his penalty on that is 50%. So you know if it's 100 grand and makeup distributions 50 that ran off the top is: to the IRS and then the other 50 is going to go to him, but is can get tax for probably another 20 of it is can be gone in taxes easily get about 30 grand on Dale, but at least he can be cleaned up and right with the IRS which is so more reason pay attention to what RMD's all right you don't want to leave that money sit there and not attend to it or if you find yourself in that position meant a great time to call hot well and in so justice will gloss the whole thing over. These people are gonna buy long-term care insurance with a big hunk of either one of their IRAs and they can actually use IRA money is too complicated to get into the show but it's going to cover minimum distributions form. We may deplete is entirely have to redo the minimum distribution payment make up the difference on hers might have two policies that cover both in the just all works out that they buy long-term care insurance with a lump sum now for Now. They got their attention. So it's pretty cool calculating your RMD's are something that might do something that you can do when you're 55 is from a standpoint of you looking at this and I think it's a beautiful thing to understand that the idea behind IRA or 401(k) originally was to create an income and net income is what they're calling a distribution which I like the word withdrawal better because when you say distribution you think you're given the money to the government but not getting about yourself and invite creating a strategy right right. Early on, even in your 50s and 60s that this is edition strategy right that that's what you need and that doesn't mean you just spend the money after you pay the taxes and the distribute. You can do that if you need an income you need to live off it, we can plan it out so that balance of the zero when you die and you will have the maximum income that you can get out of that you would send your check every month and you will never have to worry about is called an annuity is one solution we do that with half of that.

I mean, we had all kinds of ways to do that we need to be familiar with this stuff and if you come to us were to do a lot more than calculate your RMD just I can teach you how to do that about two hours get you proficient, you can calculate the real joy in this is the strategy to minimize the tax overall retirement and then minimize the taxes to the heirs and passing on what's left there you go today show us about IRAs and required minimum distribution is all Darren Hans's book the complete cardinal guide to planning for and living in retirement. What you will find a cardinal where you can email Hans if you want the whole book just to look at the subject matter plus many shows that we've done on IRAs are there in the podcasts of finishing well you know now that we went to half years into doing me so there's a lot of shows on on this subject, so have fun running out of time again, but great to have you with you. We hope you enjoyed finishing well brought you by cardinal visit cardinal for free downloads of the show previous shows on topics such as Social Security, Medicare and IRAs, long-term care and life insurance, investments and taxes as well as cons 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 you get Hans will go to cardinal 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 cardinal cardinal this is the Truth Network

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