New Required Minimum Distributions for 2022

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This show does not offer investment products or investment advice. Darrell Bock Welcome to Finishing Well with certified financial planner Hahn-Shile today. As we're looking into the end of 2021, we got new required minimum distributions, new required minimum distribution levels for 2022.

And so we're going to be getting into that. But as I was praying about this, actually, thinking about it with Hahn's, that I'm pretty certain that God has sort of these required minimum distributions as well. And of course, he taught about that, you know, in the parable of the minas where you're familiar, where he gave, you know, the one servant got 10 and another servant got five and another got one. And of course, apparently, based on the fact that the wicked servant didn't do anything but bury his one mina, he did not meet the required minimum distribution.

And so there was a severe penalty that you might remember as in being gnashing of teeth, which I don't think anybody is wanting to anticipate that particular penalty. And so the overall thing, to me, that I see here that I would love to just speak on for a second is that God has been investing in me personally, you know, oh my goodness. And each and every one of us, he's been investing in healing us through illnesses, helping our families get through this and that. And he's been obviously supplying our financial needs.

And so now we get to be a good steward, not just of our financial minimum distributions, which, you know, clearly we're going to talk about that in a minute. But oh my goodness, you know, in 2 Corinthians, it talks about comforting others with the comfort that we've been comforted with. Like you've been a recipient of phenomenal recovery, maybe from alcoholism or maybe from some other addiction or your family, you went through a prodigal situation or whatever it is, he invested in that. And now we have the amazing opportunity of trusting him because God loves risk.

I mean, if you don't think he did, he risked giving Robbie Dilmore free will. So you know, he's a risky God. I mean, he believes in risk and he wants us to risk going out with him on the adventure of giving him a return on all the things that we've invested. I mean, that he's invested in us. And I think as you listen to the show today, we're going to talk about that the required minimum distribution is not the abundant life. If you just do what's required, you know, then that isn't all that could be available to you and your family as you think about what God has invested in you.

We get a chance to give back. So along those lines, Hans, this is a near and dear topic to your heart based on all the study that you do. Hans Most people that come into me, they know what an RMD is. They know that that stands for required minimum distributions.

But I don't think too many of them have sat back and really looked at the words is that third, the second word in the three words, minimum. This is the government telling you this is the minimum you have to take out at each age, starting at age 72. And it is 72 now. It used to be 70 and a half.

So it's going up. And the government's just saying, look, when you have a balance in your IRA, you're now retired, you have to take some of this money out. And here's the minimum amount that you have to take out.

And what I'm thinking is that people, they come into me and a lot of them are just terrified of this. I know I got those minimum distributions and they'll keep asking, I'm talking about different things. How about those RMDs? How about that required minimum distribution? Don't I have to do something there?

Yeah, you do. But when we do this whole financial plan, we're going to more than meet the required minimum distributions. That's something that I really would just prefer that you don't have to worry about through your retirement.

You can let me worry about that. And we're going to be taking out more out of your IRA than the absolute minimum that we have to to satisfy the government. And so, I mean, the reason we have IRAs and 401ks and we have these big balances is because 30, 40, 50 years ago, these really didn't exist for the common people. People had pensions then. And the only way you'd get a pension payment if you worked at the same place for 30 or 40 years. And then when you'd retire, then they would pay you a check every month. And they wouldn't give you a big hunk of money to manage.

They would just qualify for so much. And when people started changing jobs, changing careers, just a lot of things went on as we got into the self-directed, defined contribution retirement accounts. So instead of the company keeping the money and having it in a big pool so that they can pay out these monthly incomes or annual incomes as called a pension, now the money sits in your account under your name. And then you're in charge of it. You're in charge of the investment on it.

You're in charge of the contribution amount that you put in. And then you're not responsible for taxes during the time. You get a big break from the government.

And for the extent that your employer deposits it in there, they get a break from the government, too. And so this is a great system. And many people have done extremely well with it. And they all of a sudden have this balance.

And they kind of get used to that. And they're just watching that grow. And it's growing not only because the investments are growing, it's growing because they keep adding money to it every year. And along comes retirement. And now that thing means a different thing, or it should mean, because now when you're retired, when you choose to retire, now that thing, instead of you putting money in it, it's supposed to put money in you. It's supposed to put money in you. But again, you're in charge.

You get to decide how much you distribute out of your IRA, or if you leave it in the 401k, out of the 401k. And then you have the problem of, well, if I start taking too much, there won't be any left when I'm 80, 85 years old, and I'll be broke. So it makes misers out of a lot of people. I mean, it really does.

People are just terrified to take anything out of here. And then they reach 72. And then all they want to take is the minimum. And it isn't very much at age 72.

Yeah. And I think you did a great job explaining that here's this person thinking, the last thing in the world I want to do is run out of money. And at the same point in time, you know, from a financial planning standpoint, this has huge tax ramifications for, as we've talked about on many, many shows. So something that we need to give some more thought to than certainly what's the minimum here?

Well, it does. I mean, we could start with the fact that many people view these as a savings account. And when I look at their balance sheet when they're coming in for retirement planning, a lot of people, you know, they might have $470,000 in their IRA, and they've got $8,400 in their savings account. And that's a little bit of an imbalance, you know, which is showing that they have basically spent their after-tax income to live. And the reason they have savings is because of this 401k. And that's why they got 470 grand. So the first problem we're going to run into is if they all of a sudden run into some kind of emergency in retirement, where they would all of a sudden need $50,000 to pay for something for their children or buy something for themselves, where there could be something very necessary that they got to go access that money, it's in a pre-tax account. So if you want 50 grand out of a out of your $470,000 account, you're really going to need to withdraw about 80 or 90 to net 50, because you're going to have to pay a whole bunch of taxes. And that's devastating to some people's retirement. We're just cruising along, treating this as a savings account. So that's the first place that accumulated money and not really taking anything out of it.

What I'd much rather see people do is begin a process of Roth conversions, Roth IRA conversions, moving the money from a taxable account into a tax-free account, and going ahead and paying the taxes at a much younger age, like in the 60s, so that they're building up a tax-free savings account, so they could go access it in an emergency without a tax implication. Right. So what we're saying is a lot of folks are thinking, well, I'm not 72. I don't need to be worrying about this kind of thing yet. But actually, it's something, even in your late 50s, you need to be thinking about.

Yeah. I mean, so you can't take money out of your IRA until 59 and a half without paying a penalty, unless you do some maneuvers. But you can do a Roth conversion earlier than that. So you can convert it from a traditional to a Roth and pay the taxes.

The only catch is you got to pay the taxes out of other money. So if we start doing Roth conversions in the 50s, we're going to have to come up with the money from other sources to pay the income tax on the Roth conversion. But if we started at 60, we can actually pay the taxes out of the traditional IRA. So in other words, if we were going to take $100,000 of our money and convert it, and that generates $30,000 in taxes, we could actually pay the $30,000 in taxes out of the IRA. And then we're only going to end up with $70,000 in the Roth. But we're much better off for it, because we now have a tax-free life savings account. And if we never access it, it's going to go to our children and our heirs completely tax-free. So.

Yeah. And that's not to mention those are in their 30s or 40s or whatever, that they can start switching their stuff to Roth IRAs rather than using traditional IRAs right now. But before we get into all that, and more of this table and all that stuff, unfortunately, we got to go to a break. So we want to remind you that the show today is brought to you by CardinalGuide.com. You know, Cardinal Advisors is the name of their YouTube channel, where there's also a YouTube video on this whole new levels of RMDs for 2022. So that information is available at CardinalGuide.com, where you can get Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement.

So we're going to have more of these new RMD levels, which we're going to get to when we come back. Hans and I would love to take our show on the road to your church, Sunday School, Christian, or civic group. Here's a chance for you to advance the kingdom through financial resources by leveraging Hans' expertise in qualified charitable contributions, veterans aid and attendance, IRAs, Social Security, Medicare, and long-term care. Just go to CardinalGuide.com and contact Hans to schedule a live recording of Finishing Well at your church, Sunday School, Christian, or civic group. Contact Hans at CardinalGuide.com.

That's CardinalGuide.com. Welcome back to Finishing Well with certified financial planner, Hans Scheil. Today's show, new required minimum distribution levels for 2022.

And so take it away, Hans. What are these RMDs, required minimum distributions? Well, first of all, they start at age 72.

And they're going to keep going for the rest of your life. Many of you that are already on a distribution plan don't need to worry about this because if you're already pulling so much out of your IRA every month or every year to live, more than likely it's in excess of this. But let's just assume that you're 72, 73, 74, 75.

If you're not there yet, just prepare to get there. And I'm just going to talk about these, what they are, how much this is going to cost you. So a simple example is if you have or you had a hundred thousand dollar balance in your IRA as of December 31, 2020, last year, and you haven't taken your required minimum distribution, you haven't taken any distribution for the year, right now, for that hundred thousand dollars, you've got to take 3.65 percent out of your IRA and pay the taxes on it. So that would be $3,650 of your hundred thousand needs to be distributed to you. And then whatever taxes are due on that amount of money, you're going to owe when you file your tax return. So people that are on the minimum distribution plan, many of them, they earn way more than 3.65 in a return on their investments. So they take the distribution, but they earn it back and more every year. So this account keeps going up, despite the minimum distributions. That's real common for people that are in their 80s, 90s, that have only worked on the minimum distribution plan to have a larger balance than they did 15 years ago when they started these things. So on a hundred thousand at age 72, it's $3,650. On a million, that's $36,500. So somebody that has a very large IRA or 401k balance, and they are 72, it's $36,500.

It's going to generate a pretty nice tax bill, especially money coming at you that you, by definition, didn't need. This number doesn't get up over 4 percent until 75. It doesn't reach 5 percent until age 81, 6 percent at age 85, and then 8 percent at age 90. And at 100, so a person is at 100, their required minimum distribution under these new tables is 15.63 percent.

So it still isn't like you got to empty the whole thing out if you were lucky enough to make 100. So what I would propose is that you would, if you're younger than this, or even if you're at this age, that we would start taking more than this, even if we pay the taxes on a larger amount than the minimum, and then we just save the difference in some type of a tax-free or tax-deferred account so that when you ultimately, if you need money later in retirement, you don't have to tap this whole taxable account first thing. Or if you don't need the money later in retirement, that you're going to leave to your children an account where they can actually receive the money without a tax liability on it. You can't mix 401Ks that have not been rolled over and IRAs. So in other words, if you have a 401K sitting there, and then you also have an IRA, you're going to have to take your minimum distribution appropriately out of each.

You can't use one to cover the other. Now Roth IRAs, which is a tax-free account that you set up by paying the taxes on the front end, which many people think is not a very good deal, and it is painful when you write the check, but if you have a Roth or you're interested in creating a Roth account, I can help you do that, then there are no minimum distributions. Once money's in a Roth, there's no requirements that you have to take any amount of it out of your lifetime.

So it is a great account to leave to the next generation. It's also a great account to draw on late in retirement, where especially if you were going to do it all at once to buy something or to buy something and give it away, I mean it just because it doesn't have a tax effect to it. I've got my 23 year old son on all, he just started his new job as an engineer, and I've got him making all of his contributions to the Roth side, and the people that work with him told him he was nuts. He just, he said okay, you know I'm nuts then, this is what my dad told me to do and this is why, but that's the real time to start a Roth is when you're a young person because you've got all those years of tax-free accumulation, and then you can enjoy a retirement tax-free. Most of my money that's in IRAs is in Roth, so I'm not going to have to deal with these minimum distributions either, or the tax bill that comes along with them.

Now what I saved the best for last is we want to talk about using QCDs or the qualified charitable distribution. This is the part that's really in line with God and the kingdom, is you can give money to the church, and it's kind of like giving God his own money back because he's in charge of the fact that you have a big balance in your IRA, and you can donate your minimum distribution to any charity, any qualified charity. Now there's a bunch of conditions, so don't just walk away from the show here and start donating your IRA money because you need to check all the boxes right. You need to have somebody that knows how to do this doing it correctly, but when done correctly, you can give up to a hundred thousand dollars a year out of your IRA. Most people don't have enough money for that amount, but for very wealthy people, that's the cap, and you give it directly to the charity or to the church, and you avoid all taxation on it, and it qualifies as your RMD. So my advice is if you can afford to, you start using your QCD or start using your IRA through QCDs as a way to give away your IRA to the church and to the mission of God.

It's a classic triple threat. That's what I just heard, right, because you're able to take it out without incurring any tax, right, which means that your gift goes that much further as well, right? Well it does, and I think if a lot of churches really understood this and the stewardship leader of the church, how many older people do they have that have sizable IRA balances that they're not using that they plan to leave to their kids, which is fine. I'm not trying to take money away from the kids here, but yet if they did their charitable giving and they're giving through the IRA, leave the other money to the kids. Leave the money you already paid taxes on or the land or the real estate, that kind of money or the life insurance money to the kids and leave the IRA in life and in death to the charity and that'll just avoid the taxes on it, period, and it'll give a lot of money to the charity.

Yeah, and this is the time of year to be thinking about that, right? It absolutely is, unless you've already made a distribution from your IRA. So if you did distributions earlier and then you come along in November and December and say, I want to do a QCD now, unfortunately that won't work, okay? Because QCDs need to be the first money coming out of the IRA to qualify for as the minimum distribution. But if we start talking about it this year and find out you can't do it, we're going to do this for you or with you in January. So that's when I like to do QCDs and get them out of the way and the church loves it. They like getting all their money in January and my advice for a lot of my clients is do all your giving in January and do it through the IRA and then if you want to throw a little something in the plate every week, I mean go for it. But the substantial part of this needs to come out of the IRA and once people understand this, they love it. Oh yeah, and I was kind of meaning that this is the time of year because we're talking about levels for 2022, which is next year, so the first thing you do is you go into January is figure your QCD and away you go. I promise you your church needs the money and your missions and they're going to welcome the money and I'll help anybody do it.

You just give me a call, I'll help you through it or I'll back check your bank or your stock broker or walk them through it just to make sure it gets done properly. Right, and it's also available for any 501c3, right? So if you're talking about those Christmas boxes, I'm trying to think what it is.

Operation Christmas Child, right? They're a 501c3 and all sorts of other things that you might want to take part in. If it's a 501c3, why not? Yeah, I mean we can name, I have a lady that just was in this conference room a few days ago and in January she's going to have six different beneficiaries of QCDs and we're not sure exactly how much, we're not going to give the same amount to each, but we can do multiple QCDs out of the one IRA. They just need to be the first in succession before she takes any money out for her. RMD, required minimum distribution, is something to take seriously.

We know the rules, we can help you stay compliant, but my suggestion overall is let's get this strategy where we're going to get this money moved out of the pre-tax account into either giving away or into some after-tax account or tax-free account like a Roth so that it is going to be better available for you later in retirement tax-free or it's going to be a nice gift to give to your children of a Roth where they don't have, it's like having a mortgage attached to your IRA if you've got to write a big check to the government out of the inheritance. Absolutely amazing. Wonderful opportunities for us to be stewards of what, you know, there's just a whole lot of big balances out there in IRAs.

It's amazing how God has blessed in these times and the opportunities, you know, that it provides. Hans, we thank you so much again. You can find out more about the 2022 levels in Hans's video at YouTube, which is under Cardinal Advisors. But of course, all the other good stuff, the complete Cardinal guide to planning for and living in retirement, as well as Hans's personal email address and the way to contact them is through cardinalguide.com. So it's the guide after cardinal.com and away you go. And of course, if you have a topic for the show or something you would like to share with us, we'd love to hear from you. And a lot of people are emailing these days, Hans at cardinalguide.com, where they're going on the website and they're just sending me a message on the messenger thing that's on our website at cardinalguide.com. A lot of people are choosing to reach out to us that way. So any way you do it, we'll be glad to help you. It's so wonderful. Thank you again.

Great show and looking forward to next week. Thank you. Finishing well is a general discussion and education of the issues facing retirees. cardinalguide.com, Cardinal Advisors, and Hans Shile, CFP, sell insurance.

This show does not offer investment products or investment advice. 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 Hans's bestselling 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 Hans'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, cardinalguide.com. This is the Truth Network.