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Required Minimum Distributions Rules (RMD Tax Bombs?) - YouTube
Channel: Toby Mathis Esq. | Tax & Asset Protection
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- [Toby Mathis] Are required
minimum distributions added
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to Adjusted gross income?
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Jeff I'm sorry I've been
(mumbles) the whole show here
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- [Jeff Webb] Oh no no it's fine.
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RMDs are calculated based on your age
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or if you're married and
have a spousal beneficiary,
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your age and your spouses age.
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There's tables set up for it.
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The way these tables work is
- [Toby] (laughs) they're
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expecting you to die
- [Jeff] Yeah
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- [Toby] that's what they're
doing, they're saying
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here's how long you're going to last
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it ends up being like
well in the beginning
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it's three or four percent or
- [Jeff] Yeah
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it goes up to the next thing you know
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you're at eight or ten percent
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But the way these tables are set up is
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if your, the amount in your
retirement doesn't change
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and you're only taking distributions
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you're going to get the
same amount every year.
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However if you're taking a distribution
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and then the next year
your account's worth more
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your RMD's going to be a little higher.
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- [Toby] Yep they are
- [Jeff] Usually not
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substantially more but
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- [Toby] And how about are they added
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to your Adjusted gross income?
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- [Jeff] Yes they are
taxable as retirement income
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- [Toby] This skinks right?
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because isn't that going
to make you pay more
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on your social security?
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- [Jeff] Yes it will
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- [Toby] Oh that sucks
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so wait you didn't get a deduction
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for your social security and then
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you were smart enough to put money aside
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and now you're going to end up
getting hit with more taxes.
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- [Jeff] Yeah, yeah I had to explain that
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to my Mother.
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- [Toby] Write your congressman
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how is that explaining that to your mom?
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- [Jeff] I threatened to fire her
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(both laugh)
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- [Toby] You can't fire
your Mom, that's just mean
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- [Jeff] I told her she might need to
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get another accountant
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Yeah but no that does happen if
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you have unexpected income
whether it's the RMDs
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it typically it's not a lot
if it's $1000 account balance
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you're only going to see a
distribution of three to $4000
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- [Toby] But RMDs, here's the thing
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it's required minimum
distributions it's something
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to understand about RMDs
- [Jeff] No, good point
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- [Toby] Is that once you're 70 and a half
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you can take the money out.
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If you need it, you can take more.
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And if you're in a, like,
let's say you had a year
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where you just had a cruddy year
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a bunch of losses or something
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now it's time to take your RMD.
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Everything you do with RMDs or anything
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like an IRA or 401k when you're taking out
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those required minimum distributions
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is that you can contribute
that to charity directly
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without having to recognize
it as income first.
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It's literally just wash
so you don't have to
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worry about the 60% right
you don't have to worry
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about the 60%
- [Jeff] Right
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- [Toby] So you can just give your RMD
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directly to your charity and boom.
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Now you're not forcing
your social security
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to be more taxable.
- [Jeff] Correct.
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- [Toby] That one's free
folks, I just gave you that one
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stuff you didn't know
- [Jeff] Oh one other thing
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about the RMDs is if you do
take a larger distribution
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in a year, that does not reduce
your RMDs in future years.
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- [Toby] Yeah
- [Jeff] And we run
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across that where people
mistakenly thought that.
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- [Toby] And by the way
if you don't take their
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your RMD they tax you at 50%
of whatever it would've been.
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Is there a way, someone just
asked on this precise issue.
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Is there a way to defer RMDs
or pass it to my spouse?
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- [Jeff] You can defer your
RMD in the very first year
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you turn 70 and a half.
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But then you end up
having to take two RMDs
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in the following year.
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- [Toby] Yeah and then
if you pass and it goes
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to your spouse
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then they're taking it out and then--
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- [Jeff] They usually continue on whatever
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the RMD payout was.
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- [Toby] Alright what is an RMD.
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Alright so let's say somebody's asking
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what is an R, it is a
required minimum distribution
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from a deferred retirement account.
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So if you have an IRA or a 401k or a
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Defined Benefit Plan.
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And you put money in, tax deferred now
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in other words I'm putting money in
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and I'm writing it off against my taxes
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so I made, let's just use
a Defined Benefit Plan
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I'm deferring $200,000 this year
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that I don't have to pay tax on.
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I'm going to eventually have
to recognize that $200,000
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but I'm doing it over
a long period of time.
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And I have to start taking it when I hit
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70 and a half.
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So that first year is like
going to be around 3 or 4%
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- [Jeff] Right
- [Toby] So if I have
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put 200,000 in and it
grows at a reasonable
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rate of interest, whatever right.
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End up with 220 in there
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I'm going to end up taking probably $8800
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that, and so that's how it works.
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If, we got a lot of RMD stuff now.
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All of a sudden I tell you guys what it is
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and I get 50 questions.
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Alright so (mumbles)
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Do you have to get RMD from an annuity?
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No, you're basically looking
at the beginning of the year
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you're looking at the value
of your account, your age
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and you run that calculation.
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Can you describe getting an
RMD from an inherited IRA?
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Oh boy
- [Jeff] Those have completely
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different rules.
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If it's a spousal IRA you usually continue
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whatever your, the spouse was doing.
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They can inherit it.
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- [Toby] Right so an inherited
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you're going to fall into two categories.
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Spousal IRA or another inherited
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- [Jeff] Right
- [Toby] When it's your spouse
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it's yours or the
decedent's life expectancy
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I believe you can actually
stretch it out over yours.
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- [Jeff] I think so
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- [Toby] When it's an inherited IRA
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I'm going off of complete memory guys
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so don't shoot me on this.
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If I'm inheriting from
somebody that wasn't my spouse
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then it's going to be five years
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or the shorter of their life expectancy
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or my life expectancy if it's me
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if it's a trust then it's
the eldest beneficiary's
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life expectancy that they use for
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the required minimum distributions.
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So it gets a little complicated
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and somebody says I
thought you didn't have
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to take an RMD from a Roth IRA
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- [Jeff] Well Roth IRA is not
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a deferred retirement plan.
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- [Toby] We never got a deduction going in
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- [Jeff] And that's what deferred means
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you're deferring income,
you're not paying tax on it
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when you put the money in.
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So that's correct, a Roth
IRA is not subject to RMDs.
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- [Toby] Alright, see?
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Alright so we're useful for something.
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(cheerful music)
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