Ask Merriman: Required Minimum Distribution (RMD)

Q: I turned 70 ½ in 2016, but waited until March 2017 to take my first required minimum distribution (RMD). I planned to wait until 2018 to take my next distribution. Am I understanding correctly that I must take the second RMD in 2017, too?

You are only allowed to delay your RMD the first year you take it. You can delay as late at April 1 of the year after you turn 70 ½.

In every subsequent year, the RMD must be completed by December 31 of that year. If you delay taking your RMD the first year, it means you will have to take two RMDs in your second year.

Q: Are Roth accounts subject to an annual required minimum distribution (RMD)? I thought only traditional retirement accounts were, but I’ve been hearing differently.

Roth IRAs are not subject to an annual RMD. However, if your employer offers a Roth 401(k), that is subject to annual RMDs upon reaching age 70 ½.

Fortunately, if you want to avoid taking distributions, it’s possible to complete a rollover from the Roth 401(k) to the Roth IRA. This should allow you to avoid having to take an annual RMD from your Roth money.

Q: Do the required minimum distributions (RMDs) from IRAs that become effective in the year I turn  70 ½ apply only to IRAs, or do they also apply to 401(k)s? More specifically, if I am still working full time, does the RMD requirement apply to my 401(k)?

If you’re still working when you turn 70 ½, you may not need to take an RMD from the 401(k) at your current employer if the following conditions are met:

• You’re employed throughout the entire year
• You own no more than 5% of the company
• You participate in a plan that allows you to delay RMDs

You must take your first RMD from the 401(k) the year you retire. In that year, you have until April 1 of the following year to take the distribution. However, if you delay, you‘ll end up taking two RMDs the second year.

The RMDs that become effective the year you turn 70 ½ still apply to all traditional IRAs, and all other 401(k)s and Roth 401(k)s.

Q: If I decide to give my RMD to my church, do I need to give the entire withdrawal amount required by the IRS, or can I just give a portion and keep the rest for other living expenses?

You don’t need to give the entire RMD amount to your church (or any charity) to complete a Qualified Charitable Distribution (QCD). The QCD can be less than or more than the RMD, up to a $100,000 limit per taxpayer per year.

A taxpayer with a $19,480 RMD in 2017 could certainly make a $5,000 QCD, and take the rest as a regular distribution for living expenses.

The key points to remember when completing the qualified charitable distribution from an IRA to a charity are that the IRA owner must:

• Already be age 70 ½ on the date of distribution.
• Submit a distribution form to the IRA custodian requesting that the check be made payable directly to the charity.
• Ensure that no tax withholding is being made from the QCD to the charity.
• Send the check directly to the charity, or to the IRA owner to be forwarded along to the charity.

Do you have a question about investments, taxes, retirement or insurance? Send it to “Ask Merriman” and one of our financial advisors will help you find an answer.