Dallas County Living Well Magazine Summer 2014 | Page 21

the deadline, a 50% excise tax is applied to the amount not
withdrawn. Of course, you are always permitted to withdraw more than the RMD, but never less.

How is your RMD calculated?
The RMDs for your retirement plans or IRAs is calculated by dividing the prior December 31 balance of each
account by your life expectancy. Your life expectancy is
estimated by the IRS under their particular life expectancy
tables, which can be found on their website. You may see
where this is going: as your life expectancy decreases, your
RMDs eventually increase. For example, by the time you’re
90, your RMD will be about 10% of account value.
RMDs are configured to distribute the entire interest of
the retirement plan account or IRA over the life expectancy
of the owner, or the life expectancies of the owner and his
or her beneficiary. The function of this arrangement is to
prevent people from avoiding taxes by simply building
retirement savings tax-deferred and then leaving it all as
inheritance. With the implementation of RMDs, the government is able to tax distributions from retirement funds over
an owner’s lifetime.
If your spouse is 10 years younger and the sole beneficiary of your IRA, then you qualify to use the joint life and
last survivor expectancy table, which lowers your RMD
amount. Since your spouse is much younger, your joint life
expectancy is then greater. This exception is to help support
younger spouses by making the IRA last longer, but to cynical retirees it may appear that the government is providing
tax breaks to those that want to marry younger people.

adviser can arrange the appropriate distribution, which
presents a great time to also do your annual portfolio rebalancing. Either way, each year you should check with your
financial and tax advisers to see if you’ve met your RMD
withdrawal requirements or what additional amount you
need to take.
In the case that you don’t need your RMD amount for living expenses, you have a variety of options for putting that
money to use. One, it can easily be reinvested into a taxable
account and potentially generate additional growth in your
portfolio.
Or, since the funds have to be withdrawn anyway, they

Who does the math
and calculates your RMD?

Your account custodians may provide RMD calculations
for each of your accounts. Typically, the figure is included
in your respective monthly statements for each account.
However, it is legally your responsibility to take the correct
RMD amount, so any calculations provided should be confirmed with your tax specialist.

Death…
IRA beneficiaries must take distributions of the entire
amount within five years of the owner’s death, or the beneficiary must take distributions over his or her lifetime
beginning no later than one year after the owner’s death.
A spouse has some additional options upon inheriting an
IRA, and would benefit from the assistance of professional
counsel.

…and taxes

What do you do with an RMD?

can go toward special lifestyle expenses such as a vacation
or gifts for the family. As the oft-repeated Ben Franklin
quote goes: “…in this world nothing can be said to be certain, except death and taxes.” The government will get the
latter, so you may as well enjoy your money before the former.

If your financial adviser provides monthly withdrawals
from your accounts, then the total of those distributions
may be enough to cover your RMD. If not, your financial

To learn more about Portfolio Solutions®, visit their website at www.portfoliosolutions.com.

RMDs are taxed as ordinary income. While RMD
amounts cannot be rolled over into another tax-deferred account, taxes on a distribution can be postponed unti