RMD Aggregation

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Enjoy it, and please share it around with all your friends. Thanks for listening, and thanks for choosing the Truth Podcast Network. This is the Truth Network. Now, let's get started with Finishing Well. And I like the idea of prayer aggregation, okay?

Aggregation meaning combining things into one thing, right? There was this hilarious video that Hans and I used to watch when we'd go eat lunch together, and we would just laugh and laugh about this. This comedian would talk about, you know, was it proper to pray, you know, in a restaurant, you know, when they brought out the appetizers? Well, in certain appetizers, this is the way the comedian said, certain appetizers like chips and hot sauce, it's not necessary to pray, but we know if they had it was a substantial appetizer, you know, like wings, then it is necessary to pray. And he went at this whole thing, like, if they bring the salad, well, it depends on if it's Caesar, you know, and all these different things, like, wow, wow, wow, like, man, there's a lot to keep up with to know when to pray.

I've thought a lot about this. In fact, I think about it all the time, that if we were to take Paul's advice and do like Moses obviously had an unbelievable ability to hear from God whenever God spoke. And so it was clear to me that his idea of prayer aggregation was he was always tuned in to WGOD.

He was tuned in to God. And so since if you're always listening for God, you're always praying, right? And then as you're thinking about God, if he's on your mind, too, when you get those chips and hot sauce, yeah, if you want to stop and say, man, thank you, God, these are awesome. Or as you're eating them, it's okay to look up and smile and go, man, God, this stuff is great. You know, I don't know if you've ever heard this, but I'm told that when the Jews think about the Aaronic blessing where he said, may the God shine his face upon you, okay? Well, I don't know if you've ever seen the sunshine prayer where you take your hands and you kind of stick them out of your ears and you show somebody a big smile or sunshine smile. Well, the idea is God's looking down at you, giving you the sunshine smile, like a dad looking at his baby, trying to get that baby to smile. Well, God's always up there trying to get you to smile. And so when you look up, whether you're eating those chips and hot sauce or whether you're in the salad, it doesn't matter.

If you look up and smile, that's prayer aggregation, Hans. That's awesome. Okay. So RMD, let's go over that again because some people, what in the world are you talking about? That's some helpful, yeah.

Okay. It's required, meaning the government requires you to do something with your IRA or all the money that's in your retirement accounts. Required, minimum, so that means that you're going to have to take some money out of your IRA and it's a minimum amount that the government calculates for you, or we need to calculate it, but they've got the formula in the tax code. And the D or distribution is you're taking money out and paying taxes on it. RMD, required minimum distributions, and for most people listening, that's going to be age 73. For some people, it's going to be age 75 because it's people that are younger than me, but let's just understand that it's one of the two and that at that age, you're going to have to start taking money out of your IRA. So what we're talking about today is aggregation, meaning that if you have several IRAs, which a lot of people do, they have two or three of them or more, I've run into people with many more than that, or they have a 401k that's left over from where they used to work and then they have some IRAs, you're able within certain rules to aggregate all of these IRAs and just take the distribution out of one of them.

And that's what we want to talk about today. So somebody's got a 401k from a job that quit 10 years ago and then they have an IRA with their current employer, but then there was another IRA that they contribute to individually. Now they got two IRAs and a 401k and each of those at their past 73, they got to make a distribution out of to a very specific formula, right? And so this gets complicated. Oh, it does.

And so I tell people don't try this at home. Each one of these institutions is going to tell you what your RMD is or your required minimum distribution. Once you reach age 73 or 75, if that's appropriate, they're going to tell you on the statement that's in January, this is what your RMD is. And then you could simply pull out all those statements, add them all together and you'd come up with your total RMD. Now, if you went around and you took that amount out of each one of those accounts and you did this yourself, you're not going to have any problem, that amount or more.

So the institution calculates it for this guy you were just talking about. One IRA, take it out. Another IRA, take it out. The 401k, take it out.

So what happens when people that have multiple IRAs, they maybe don't want to take it all out of proportionately out of each account. So there's some rules that you could take it all out of one. But I'm going to go over those rules today just generally. And I hope I give you enough sense that if this is you, don't take it all out of one at home.

I mean, give somebody a call. Go to a professional and ask them this or give us a call now. So when it starts out as IRAs, if you have multiple IRAs and they're not one is a Roth and one's a regular traditional IRA, you have multiple IRAs, they're all traditional IRAs. You're 73 years old or older and you want to take the minimum distribution out of one of them. Like for instance, one of them could be at the bank and it could be invested in something very simple and you don't mind just pulling it out of there because it's not making much anyhow. The other one could be invested in stocks and you don't want to sell the stocks to take the required minimum distribution. So if the ones that are both IRAs, they're on you and they're not Roths, we can add those RMDs together and then take it all out of the one at the bank. Which would clearly be like last year when, oh my goodness, a bunch of people would have taken huge losses if they had to sell the stocks at that lower number.

That's a big reason that you want. Well, that's the reason a lot of people do this. That might be why they have different IRAs. I mean, some people rolled over an old 401k into an IRA and they did it at a stockbroker and that stockbroker has been managing that and they've done well with it but it went way down last year and they don't want to sell anything right now.

They want to give it a chance to come back. And then they have this other IRA that maybe they took out at the bank and they've had it there for years and they didn't lose anything in that last year but they haven't really over the years made much at the one that's at the bank or it's in an annuity or it's in something which is not yielding a lot but yet they can just go pull all the RMD out of the one of their choice, okay? I have clients, three, four, five, six of them. And so once we take care of the RMDs, we might think about aggregating these whole accounts or getting these things all put together as one. Right, because as I understand, if you've got an old 401k or any 401k I guess, you can't aggregate them.

No, you can't. So with a 401k, even if you had two of them, one was with your long ago employer and you just left it there and the money's been invested and they let you do that and then you have another one which is the place you just retired from and you just like leaving your money there and you've liked what you've gotten and they're kind of there and now you're 73 and you're not working, you're retired, you're going to have a minimum distribution out of each of those 401ks and you're going to have to take them from each 401k individually. You're not going to be able to go to the one and say I want you to pull out your RMD and cover the other guy here. So one of the things that you do coming out of it is try to figure out why do we have these different ones and what happens if you could combine those, right? Yeah, and so we're going to do that in financial planning and especially preparing people for their 70s, late 70s, 80s, and then preparing their estate.

This gets pretty complicated when people get up into their 70s and 80s to keep track of. So we're going to call that consolidation. You can roll 401ks over into an IRA. You can roll other IRAs. So we're going to get one central place for a lot of people where they're going to have all their IRAs put into one. But as soon as we do that, a lot of people that are getting ready for their 70s and their 80s want to buy annuities and they want to do different things with different annuities. So we have people that have an income annuity and another one that's accumulating and they're all IRAs. So we even have people going into the late retirement that have multiple IRAs because they're doing and accomplishing different objectives for them, okay? So this isn't necessarily a problem we always want to make go away, but the business of leaving 401ks behind and leaving the money there, now clearly there's reasons to utilize the old 401k company sometimes, okay? There's reasons to move it out of there too, but we're going to always look.

We're fiduciaries. We're always going to make sure you're not giving up something of meaning to you like leaving the 401k. But one thing you're giving up is confusion if you were going to roll it over and roll it into an IRA and then you can commingle it. So when people get up there in years and they start facing RMDs, they're different than somebody like in their 50s for a lot of reasons.

Of course, as they get closer, you know, there's all sorts of ways to roll those things into something that would make more sense. I mean one of the ways we can make IRA RMDs simple is to get them all into annuities that are paying out an income that's going to be way more than your minimum distribution. You're just getting a check.

You can freely spend it because if it's coming out of an annuity, there's a guarantee that it's going to pay you for the rest of your life. Again, the show is always brought to you by cardinalguide.com. There you can find Hans' book, The Complete Cardinal Guide to Planning for and Living a Retirement, and the Seven Worries tabs, which is on IRAs today. It's all there as well as show notes on all this information. It's all there at cardinalguide.com as well as Hans' book, The Complete Cardinal Guide to Planning for and Living a Retirement book. It's all there at cardinalguide.com.

We'll be right back. Investment Advisory Services offered through Brookstone 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. Welcome back to Finishing Well with certified financial planner, Hans Schiel. Today's share and today's show is RMD, or required minimum distribution, and this has to do with an IRA or a 401k.

They're required after age 73 that you've got to take some money out, and that's called an RMD, required minimum distribution. Today we're talking about aggregating those if you might have more than one and all sorts of interesting things along those lines. Hans? Well, yeah. So in the first part of the show, I think we did a great job of why aggregation matters, why minimum distributions matter. We talked a little bit about the problems that get created by having multiple IRAs in combination possibly with a 401k.

And now in the second part of the show, I want to talk about what. What are the rules and kind of throw at you just at the risk of being a little bit boring how aggregation works and when you can apply it and when you need to be careful. So if you have multiple IRAs, multiple accounts that are IRAs in your name and your name only, not your spouses, you're allowed to take all the distribution out of one of them. You're allowed to aggregate, and that includes simplified employee pensions or SEPs, and that includes simple IRAs, which are really for small businesses. They're like a pension plan, but they're really IRAs. So all of those accounts, if you have them all separated, when you reach 73, you can take your RMD or your required minimum distribution. You can aggregate it and take it all out of one account.

Okay? For Roth IRAs, you can have multiple of those. There are no RMDs while you're alive and during your lifetime. So it's not an issue.

That's why you don't have to worry about aggregating them. You don't have to worry about anything because if you have money in a Roth, it's growing tax free. It's going to go to your heirs or it's spendable for you tax free.

There are no such thing as an RMD while you're alive. Yeah, because you paid taxes on that one already. Yep.

When you put the money in. Right. Yep.

Okay. So the next one is company plans and where this is most common would be the 401k. Now, if you have multiple 401ks, so if you left your money in your 401k and you've done that at more than one place, so you got two old 401ks and now you're retired, you have to take your RMDs separately or you got to take it out of each one. This might be a time you might think about consolidation and especially as you grow older, this might be not that hard for you to do at 73, 74, 75, but I've met many a person that's in their 80s that they really messed up RMDs and nobody noticed.

Some of these people have messed them up for years and now their kids get sticking their nose into the stuff they're doing because maybe they're developing a little dementia or they're getting to that age where they're passing over stuff and they've just messed things up. A 401k doesn't really have an advisor attached to it. An old 401k, maybe they've been sent it in the mail about minimum distribution, so just understand if you got a 401k that's old and you need to take the RMD out of the 401k, if you got more than one of them or you got a 401k and an IRA, that 401k needs its IRA taken separately. Oh, that brings a question up in my mind. What happens if you don't, for those people that, oops, I did an RMD when I needed to?

Oh, man, it's not good. I mean, that's just, we study this stuff at length at Ed Slott. I mean, the first thing we got to do is we got to go ahead and take the RMDs. I mean, we got to do the makeup stuff, okay, and there's significant penalties attached, like can be as much as 50% and of the tax due could be penalty and that under the SECURE Act, they lowered that to 25%. I don't want to get into details on that, but you don't want to mess up RMDs, okay? I mean, let's just put it that way and it gets real complicated.

We can do it for you. You definitely want to get a professional involved and you're going to need to take the money out of there and you're going to make up RMDs and then you can file an appeal to have the penalty removed if it's an older person that there's some reason that they couldn't keep up. We can make up a reason and that kind of thing and they're not going to get rid of it so much as they're going to for the penalty.

Sometimes they will eliminate the whole thing, but they'll reduce it. So the answer to that is let's get ready for this and let's not – Cross the line. Yeah, let's just not do it. Let's get it done right and what we do for a lot of people is when they get hit 70 and now they're much more interested in income than they are managing assets and making a lot. We put people on a distribution plan or a minimum distribution plan for the rest of their life. So we can use annuities to just pay out your retirement accounts to you, principal and interest that's guaranteed to last the rest of your life. And then people just get a check and then we've done all the things so there's no way to violate RMDs even if they live into their 90s. Because the idea is to clear these things out, which the minimum isn't the objective at all, right?

Well, yeah, it's not. And then keep in mind that there are no RMDs for Roth IRAs. So if we do some conversions, once we get the money over in the Roth, you don't have to take any distributions. You can just leave it there and you can leave that money to your kids.

Right, right. And then the last one is 403B plans. Those are for teachers, hospital employees. They're somewhat like a 401K but there are differences. You actually can aggregate those but only amongst those. I mean a lot of teachers that have 403Bs, they got two, three, four of them.

They just do. You know, one might be invested in stocks, the other two are annuities and the other one is just an annuity that's in cash or something. So there are some reasons to do aggravations. Just know that there are rules and when you start doing this aggregation business, you need to talk to somebody.

Okay, like me. Or you need to consult a professional. Now over on the inherited side, I'm not going to go through the details of the rules but this has an effect on your kids too. So your adult kids, you leave them as the beneficiaries and then when they receive them, they're going to have RMDs as well and they're different RMDs. They apply differently and then there are certain situations if you leave them multiple IRAs that they could aggregate in certain situations that they can't.

If you're interested, when we do financial planning, we're going to look after those beneficiaries and we're going to try to consolidate accounts to make this as least confusing for your kids as well. Only if you tell us to. Some people just say, let them worry about it. Well, okay.

Well, for instance, I was shocked. I didn't know that there were RMDs for Roth IRAs. Because we always talk about how there's no tax on the Roth IRAs but I didn't know they were RMDs and so that's a great piece of information. Or inherited from us. So when you inherit a Roth, you can basically leave it there for 10 years and then you pull it all out at the end of the 10th year.

Okay. You don't have any during the 10 years, you have to take a certain amount out. You don't have to pay taxes on them as an inherited Roth IRA beneficiary. So we really sit down with the beneficiaries and put together a strategy and some of that's based upon their needs. Some people like getting a check every year for one-tenth of it so that it'll be empty by the end of the 10th year to satisfy the IRS.

Right, right. But the point of it is, is that, you know, wow, this is, you know, because for a lot of folks that's the reason they converted it to a Roth IRA. And so it's just good to know, obviously it's still way, way, way better for their beneficiary to get a Roth IRA than a traditional IRA because they don't have to pay tax on it.

But they do need to know that by the 10th year, it's got to be gone. Well, and the IRS does that because after your death, that money is still growing tax-free and the beneficiary is not going to have to pay any tax on anything coming out of the account. So people that have a lot of money and don't need the money, they're just going to leave it, sit there and grow for another 10 years and then pull it all out at once tax-free. And they can't roll that into another, into another Roth. But I suppose they could create a Roth for themselves, right?

Oh, sure they could. And that's where you get into intergenerational planning. Yeah, if somebody hasn't done a good job of saving themselves and then, you know, if they've got this thing that they've got to empty at the end of the 10th year, that isn't going to do them a lot of good. So it might be pull out just enough each year for 10 years to fund a Roth IRA contribution that you're otherwise eligible for and you just take it from the Roth, no tax, put it right into your own Roth, then you're never going to have any minimum distributions on that. So there's some strategies that you can, we can put the balance of it into life insurance.

That's Hans kind of thinking right there and you can see the look in his eye. Sure, sure. So I, you know, I mean, what we want to do first is for people coming into us, we want to make sure that you can enjoy your money. I know a lot about RMDs, but I'd like people to distribute their money in excess of the minimum and to do that over their lifetime. And I like to use annuities because then you just get a check and there's no risk of outliving your money about spending it. So we generally get the people that come into us set up so that they don't really have to worry about minimum distribution because they're taking way more than that anyhow and they can just enjoy their money. And then if they're going to give money to their kids or they're going to leave money to their kids, it doesn't mean they're spending all this income, they're going to be putting it in tax favored things to then go to their kids if they don't need it before they pass.

Right, right. Well, as usual, we've run out of time before we ran out of show, but there's all sorts of information at cardinalguide.com. If you go to cardinalguide.com, there's these seven worry tabs and one of those tabs is IRAs. And so today's show, as well as a video right along the same lines, is there at the IRA tab at cardinalguide.com. And of course, an easy way to contact Hans, because as we've talked about many times, there's no cookie cutter approach to all this. It could be quite complicated and they would love to customize something for you with your particular needs and you can just contact him right there through cardinalguide.com. And of course, always his book, The Complete Cardinal Guide to Planning for and Living in Retirement, it's all there, cardinalguide.com. Thank you, Hans. Great show.

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.

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Finishing Whale is designed to provide accurate and authoritative information with regard to the subject covered. Investment advisory services offered through Brookstone 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 Whale 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' 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 Hans' book, go to CardinalGuide.com. If you have a question, comment or suggestion for future shows, click on the Finishing Whale radio show on the website and send us a word. Once again, that's CardinalGuide.com. CardinalGuide.com. This is the Truth Network.