Tag Archives: Early Retirement Distribution

RMD Season is here – Is your DOB between 7-1-47 to 6-30-48 ? You have a decision!

RMD – AKA Required Minimum Distributions – the Governments’ mandate of distribution from our IRA (Pre-Tax) funds in order to finally occur taxes is upon us…..

RMD Season Uncle Sam

In the coming weeks we will begin transferring mandated funds from our IRA/Qualified/Pre-Tax accounts to their directed destinations….

As a reminder this is so the US Government gets to take the taxes due …

IMPORTANT (Neat) Facts –

  1. RMD $$ mandated amounts are determined by the value of applicable accounts on the last day of the prior year
  2. Current year age is a necessary factor included in calculating the RMD – see below next, first time exception – each year of seasoning (getting older) we are forced to take more out of the applicable accounts – hey the IRS has never taxed us on these in many cases – it’s their time!
  3. After tax contributions to a qualified account MUST be accounted for in order to avoid taxes – here are greater details and our taxpayer obligations on this –  don’t overpay – the IRS is not tracking this and will not come to the rescue and lower your taxes
  4. All of an individual’s accounts must be included/totaled/value (certain exceptions are made to those continuing to work) to ascertain the needed distribution
  5. Any one account can be used to satisfy the needed distribution (you do not have to take a little from each account, making it easier from an organization standpoint) BUT you must take at least the minimum distribution
  6. Failure to take the mandated distribution amount COULD result in a 100% tax – Break in – our experience has been the IRS is nice about this, but let’s not test them

Here is a neat three part series from a while back that is worth a review!

70.5 is the key starting age

The mandatory commencement date of RMD’s is the year AFTER you turn 70.5 years young, under current tax law…

If you accept this first year deferral, you will incur two RMD’s in the year you commence your first RMD…

Depending on the situation, it may be advisable to distribute your first year RMD a year early so as not to clump your taxable distribution….

Is your DOB between 7-1-47 to 6-30-48?

Then you turn 70.5 in 2018 and you CAN defer your RMD until 2019, however you will have two RMD’s next year — be careful, large distributions could toss you into an extra tax bracket.

Reach out if you have ANY questions, we have plenty of time, BUT the clock is ticking…

Have a great ‘RMD Efficient Distribution” Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.

How to get to your retirement account BEFORE 591/2 without penalty….Rule 72T

Contrary to many cookie cutter recommendations there are situations when it makes sense to draw from the so-called sacred IRA or other type of qualified retirement plan before 59 1/2.  While not a regular occurrence, it is possible and perfectly legal. Examples of early distribution needs include tax and required minimum distribution minimization, along with oversized qualified pool depletion techniques.Rule

Rule 72T allows investors with certain restrictions to withdraw from their IRA or other similar type qualified accounts.

Here are the main details:

  • The investor must take substantial equal periodic payments for at least 5 years or until age 59 1/2 which ever is longer
  • Distribution amounts are determined by mortality and distribution rate assumptions and CANNOT be changed once commenced
  • Distribution amounts can be controlled through account segregation size

This is one of the techniques that should carry a warning, “Do not try this at home by yourself” as there are many pitfalls that can cause excruciating tax pains if done incorrectly. However, established correctly, monitored, and carefully planned, rule 72T can be a life savior in some circumstances allowing early (pre age 59 1/2) non-penalty withdrawals.

Have a great day!


PS Just as the warning says, this is not for the faint of heart and also this post is not a recommendation to complete this technique, careful consideration is needed and every situation is different.

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