IRAs: Calculating your RMDs - YouTube

Today's Cardinal lesson is about Required  Minimum Distributions, or the acronym RMD,  

and so it's talking about your IRA, your 401k,  and what is qualified money that money that you  

haven't paid taxes on. A lot of people just skip  studying about this, they're somewhat familiar,  

but they don't really get into the nitty-gritty  until they reach age 72, and that's the year that  

they start it, used to be a little earlier than  that, it's now age 72, so the year you turn 72,  

you got to start taking some money out of your  IRA. Now we've done a little calculation here  

as an example, somebody who's 72 years old,  that had $100,000 on the last day of the year  

in 2020 a balance in their account, their minimum  distribution is going to be $3,906, almost 4%,  

just a little short of that,  that's where they start,  

and through the 70’s they don't rise quite a bit,  it's in the 80’s and 90’s that they go way way up.  

What I don't think is smart estate planning  tax planning strategy is just to avoid taking  

distributions until you absolutely have to and  then start taking them and only take the minimum.  

What that's going to leave you with is a  whole bunch of money, of untaxed money,  

at your death, and it's going to go to your  heirs, or your children, and it's going to be,  

half of it's going to be gone in taxes. I could  show you the math on that in a later video,  

so what should we do, what do we recommend, we’ll  typically start distributing as early as possible,  

and so if you're in your 60’s now, or your 50’s, I  don't want you to start distributing in your 50’s,  

you'd have to start paying some penalties, unless  you're retired, but you know as soon as you retire  

we're going to take a look at doing  some distributions every year,  

even if you don't need the money, and we're  going to do that to try to smooth them out.  

We don't even need to decide what they are  every single year for the rest of your life,  

we can just create a zone and we can look  at it year by year when you do get to 72,  

all this is saying is you got to take at least  that much. The whole deal with IRAs is they really  

were put in place and gained popularity 40 years  ago, 30 years ago, and they replaced pensions,  

most people 50 years ago used to have a pension  and they didn't have much money or cash that they  

could lay their hands on, now most people don't  have a pension and what they do have is a 401k  

,an IRA, a balance which looks like and is a  lot of money, they've never paid tax on it,  

and what it's there for is to create  an income for you in retirement,  

and this is just the government saying to you  if you don't start drawing on this thing when  

you get to be 72 ,we're going to make you. Anytime  the IRS has something they use the required word,  

you know required distribution, that's going  to generally be good for them and you know bad  

for you, and so this makes short term tax sense to  take the minimum because you take the least amount  

out, you're going to pay the least tax. I'm just  saying over time, if you don't start having a plan  

to take substantial money out of here, you're just  going to have this huge balance down the road,  

we see it all the time, and then we're advising  the kids and trying to avoid a big tax hit.  

There's smarter ways to do this. If your  spouse is 10 years younger than you,  

you're able to make this minimum distribution a  little bit less, but bottom line is you should  

start earlier than 72 distributing. You also can  use a Roth conversion strategy, Roth IRAs have  

no minimum distributions, so it's just there for  you tax free whenever you want it, you can leave  

it to your heirs, it's tax free to them, so  I'm Hans Scheil and I thank you for listening.