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2 COSTLY Required Minimum Distribution Rules | Your Retirement Authority - YouTube
Channel: Mark Singer CFP Your Retirement Guide
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roth accounts are a great tax reduction
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tool in retirement however
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there are two specific rules that if you
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are not aware of
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could be very costly to you and in this
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video i want to share with you those two
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very specific rules so you can make sure
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you are in compliance with the irs
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but before we get there subscribe to my
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channel i have over 30 years in this
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business i want to share with you the
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conversations that i have with my
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clients so that you don't make the
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mistakes that they might have so i've
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said over and over again on this channel
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i think our industry has done a lousy
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job of preparing you for retirement
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all the messaging is about you know the
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more money you accumulate the happier
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you'll be you'll be able to pursue your
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dreams
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but the reality is there's so much focus
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on the benjamins
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there's not enough focus on the planning
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and a part of the planning is how to
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make sure that you tend to the taxes and
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the retirement distributions properly
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and there are some advanced planning
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strategies that are available to you
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that you may not be aware of and there
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are tax land mines that if you step on
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them could be very costly
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and this is why i wanted to put this
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video together for you because there are
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two specific rules with regards to roth
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required minimum distributions that you
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need to be aware of before i get to
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those two specific rules there are two
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items i want to share with you that we
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talk to our clients about a lot that
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seems to be something they were not
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aware of again because i think our
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industry's done a lousy job the first is
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and i'm guessing you've heard about the
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whole term of diversification and you
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think about it in terms of your
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investment portfolio
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but have you ever thought about
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properly diversifying your retirement
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accounts so that you can take control of
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when you get the income and how much in
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the way of taxes you have to pay we call
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this the income
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faucet
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roth iras are a wonderful part of that
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diversification strategy because you can
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turn on and off that income bucket
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whenever you like because there are no
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required minimum distributions for the
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owner and in terms of taxes you don't
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have to pay any on it as long as you've
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owned it for five years or more it's a
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great tool and the diversification
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of your retirement accounts to include
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ross can be a very useful strategy the
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other thing that i want to talk to you
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about
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is just whether or not a roth is good
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for you and we have a video on that you
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can take a look that at it when you have
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some more time but one of the items i
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want to talk to you about and i just had
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this conversation with a client of mine
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i basically said to him
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that
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if he waited any longer
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converting to a roth probably would not
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make any sense for him because there's
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an upfront cost
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to doing a roth conversion particularly
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if it's a sizable number so
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if you're thinking about roth
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conversions
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don't wait too late have this
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conversation with your financial advisor
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your tax accountant to see whether or
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not you're in a position
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to take advantage of it because now
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there may be a cost to you now
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but later on there may be a tremendous
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benefit particularly if tax rates are
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going to go up you'll pay taxes on a
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much lower smaller amount now
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but get on a larger amount and pay
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nothing when tax rates are higher
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later
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it's something to truly consider so
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let's start off with the two specific
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rules you should be aware of and we'll
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start off with the roth 401k
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so let's go to my screen for just a
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moment
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so let's take a look at the roth 401 k
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rmd required minimum distribution
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the rmd rules apply to all employer
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sponsored retirement plans including
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profit-sharing plans 401ks 403 b's 457s
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the rmd rules also apply to traditional
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iras and ira based plans
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this is the sentence you need to be
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aware of however
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the rmd rule also applies to roth 401k
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accounts however the rmd rules do not
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apply to roth iras while the owner
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is alive so the simple solution is
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rolling over your roth 401k to your roth
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ira now remember
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one of the caveats here is you're not
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allowed to take out within the first
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five years of a roth your earnings
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they would be taxable you would get
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penalized
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but if you can wait a period of five
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years
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then all the money that you rolled over
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and all of the earnings would be
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available to you
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on a tax-free basis
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now on this next slide
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we talk about
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ira beneficiaries after the secure act
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now it's important to understand
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that there's sort of a differentiation
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in terms of timeline prior to 2020 when
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the secure act came out there's a
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different definition and different rules
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for stretching out your ira
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so you need to go to your tax person or
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your financial advisor to see whether or
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not you qualify for those
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distributions
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pre-2020
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before the secure act
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for anything after that
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there are three different buckets here
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and the one that i want to focus in on
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is the middle one
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the one for designated beneficiaries
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and what we call
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non-spouses
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now if your spouse is the beneficiary
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then he or she can do what he or she
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needs to do over his their lifetime but
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if it's a
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non-spousal beneficiary then the rules
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are very different
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as a result of the secure act the
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designated beneficiary particularly if
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it's a non-spouse like you know from
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inheriting a roth ira from a parent
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there is a 10-year distribution rule
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that from the moment of the inheritance
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to 10 years out the money needs to come
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out
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if not
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it will be penalized for non-compliance
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and it's a 50
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tax penalty
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now my suggestion to you and again i'm
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not providing financial advice to you
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but just something for you to think
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about
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if you don't have to take it out
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immediately
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and let's say for instance you have a
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five hundred thousand dollar roth
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inheritance and you're a non-spouse
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maybe you delay taking it out to as late
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as possible let's call it ten years out
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let's assume some numbers
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maybe you can get a five percent return
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on it over time no guarantees just as a
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number for for our purposes
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in ten years
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that five hundred thousand dollars has
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grown to about eight hundred and fifteen
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thousand dollars so if you can take the
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money out free would you rather take out
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five hundred thousand or eight hundred
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and fifteen thousand
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so this is where talking to your
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financial advisor can be very helpful to
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you because the the benefit of this is
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all in the planning and making sure you
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can coordinate
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the roth ira and make sure that you
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understand these two specific
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rmd rules to ross where
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typically there are no rules to require
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you to take the money out but in these
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two specific instances
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there are
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you
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