Planning for Good®Karen Melo Ticas, CFP®, RICP®Financial Advisor- - - - - - - - - - - - - - -501 Wampanoag Trail, #200East Providence, RI 02915(877) KMT-PLANkaren@planningforgood.netwww.planningforgood.net

Required Minimum Distributions (RMDs)

November 04, 2019Page 1 of 8, see disclaimer on final page

Karen Melo Ticas, CFP, RICPKaren Melo Ticas, runs an independent practice focused on serving health care providers,business professionals and the LGBTQ community. As an advisor working closely with BaystateFinancial, she has access to the firm's many resources and experienced professionals.

Karen developed her passion for retirement planning in her early years as a broker servicesrepresentative for Putnam Investments. Being first generation American, she has a deepappreciation for the meaning of hard work, diversity and building the life of your dreams.

Karen has a bachelor's degree in Finance, with a minor in Economics, from the University ofMassachusetts – Dartmouth. She then studied at Bentley University while working towards herCertified Financial Planner designation. Most recently she attained the Retirement IncomeCertified Professional designation to help her better serve her clients in their golden years.

When she's not working with clients and building her practice, Karen enjoys travelling with herhusband and spending time with her Little Sister mentee, a bright teenager she first met at theage of eight through Big Sisters of the Ocean State. You can often find her relaxing with a bookand a glass of red wine, cooking a low-carb recipe or practicing her newest passion, Latin dance.

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What Are Required Minimum Distributions(RMDs)?Required minimum distributions, often referredto as RMDs or minimum required distributions,are amounts that the federal governmentrequires you to withdraw annually fromtraditional IRAs and employer-sponsoredretirement plans after you reach age 70½ (or,in some cases, after you retire). You canalways withdraw more than the minimumamount from your IRA or plan in any year, butif you withdraw less than the requiredminimum, you will be subject to a federalpenalty.

The RMD rules are calculated to spread outthe distribution of your entire interest in an IRAor plan account over your lifetime. Thepurpose of the RMD rules is to ensure thatpeople don't just accumulate retirementaccounts, defer taxation, and leave theseretirement funds as an inheritance. Instead,required minimum distributions generally havethe effect of producing taxable income duringyour lifetime.

Which Retirement Savings Vehicles Are Subject tothe RMD Rules?In addition to traditional IRAs, simplifiedemployee pension (SEP) IRAs and SIMPLEIRAs are subject to the RMD rules. Roth IRAs,however, are not subject to these rules whileyou are alive. Although you are not required totake any distributions from your Roth IRAsduring your lifetime, your beneficiary willgenerally be required to take distributions fromthe Roth IRA after your death.

Employer-sponsored retirement plans that aresubject to the RMD rules include qualifiedpension plans, qualified stock bonus plans,and qualified profit-sharing plans, including401(k) plans. Section 457(b) plans andSection 403(b) plans are also generallysubject to these rules. If you are uncertainwhether the RMD rules apply to youremployer-sponsored plan, you should consultyour plan administrator or a tax professional.

When Must RMDs Be Taken?Your first required distribution from an IRA orretirement plan is for the year you reach age70½. However, you have some flexibility as towhen you actually have to take this first-yeardistribution. You can take it during the yearyou reach age 70½, or you can delay it untilApril 1 of the following year.

Since this first distribution generally must betaken no later than April 1 following the yearyou reach age 70½, this April 1 date is knownas your required beginning date. Requireddistributions for subsequent years must betaken no later than December 31 of eachcalendar year until you die or your balance isreduced to zero. This means that if you opt todelay your first distribution until April 1 of thefollowing year, you will be required to take twodistributions during that year — your first year'srequired distribution and your second year'srequired distribution.

Example: You have a traditional IRA. Your70th birthday was December 2, 2018, so youwill reach age 70½ in 2019. You can take yourfirst RMD during 2019, or you can delay it untilApril 1, 2020. If you choose to delay your first

distribution until 2020, you will have to taketwo required distributions during 2020 — one for2019 and one for 2020. This is because yourrequired distribution for 2020 cannot bedelayed until the following year.

There is one situation in which your requiredbeginning date can be later than describedabove. If you continue working past age 70½and are still participating in your employer'sretirement plan, your required beginning dateunder the plan of your current employer canbe as late as April 1 following the calendaryear in which you retire (if the retirement planallows this and you own 5% or less of thecompany). Again, subsequent distributionsmust be taken no later than December 31 ofeach calendar year.

Examples: You own more than 5% of youremployer's company and you are still workingat the company. Your 70th birthday was onDecember 2, 2018, meaning that you willreach age 70½ in 2019. So you must takeyour first RMD from your current employer'splan by April 1, 2020 — even if you're stillworking for the company at that time.

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You participate in two plans — one with yourcurrent employer and one with your formeremployer. You own less than 5% of eachcompany. Your 70th birthday was onDecember 2, 2018 (so you'll reach 70½ onJune 2, 2019), but you'll keep working untilyou turn 73 on December 2, 2021. You can

delay your first RMD from your currentemployer's plan until April 1, 2022 — the April 1following the calendar year in which you retire.However, as to your former employer's plan,you must take your first distribution (for 2019)no later than April 1, 2020 — the April 1 afterreaching age 70½.

How Are RMDs Calculated?RMDs are calculated by dividing your traditional IRA or retirement plan account balance by a lifeexpectancy factor specified in IRS tables. Your account balance is usually calculated as ofDecember 31 of the year preceding the calendar year for which the distribution is required to bemade.

Example(s): You have a traditional IRA. Your 70th birthday is November 1 of year one, and youtherefore reach age 70½ in year two. Because you turn 70½ in year two, you must take an RMDfor year two from your IRA. This distribution (your first RMD) must be taken no later than April 1of year three. In calculating this RMD, you must use the total value of your IRA as of December31 of year one.

Caution: When calculating the RMD amount for your second distribution year, you base thecalculation on the IRA or plan balance as of December 31 of the first distribution year (the yearyou reached age 70½) regardless of whether or not you waited until April 1 of the following yearto take your first required distribution.

For most taxpayers, calculating RMDs is straightforward. For each calendar year, simply divideyour account balance as of December 31 of the prior year by your distribution period, determinedunder the Uniform Lifetime Table using your attained age in that calendar year. This lifeexpectancy table is based on the assumption that you have designated a beneficiary who isexactly 10 years younger than you are. Every IRA owner's and plan participant's calculation isbased on the same assumption.

There is one exception to the procedure described above — the younger spouse rule. If your soledesignated beneficiary is your spouse, and he or she is more than 10 years younger than you,the calculation of your RMDs may be based on the longer joint and survivor life expectancy ofyou and your spouse. (The life expectancy factors can also be found in IRS publication 590.)Consequently, if your spouse is your designated beneficiary and is more than 10 years youngerthan you, you can take your RMDs over a longer payout period than under the Uniform LifetimeTable. If your beneficiary is not your spouse, or a spouse who is not more than 10 years youngerthan you, then you must use the shorter payout period specified in the Uniform Lifetime Table(see below).

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Uniform Lifetime Table

For use by:• Unmarried owners• Married owner whose spouse is not more than 10 years younger• Married owner whose spouse is not the sole beneficiary

Age Distributionperiod

Age Distributionperiod

Age Distributionperiod

70 27.4 85 14.8 100 6.3

71 26.5 86 14.1 101 5.9

72 25.6 87 13.4 102 5.5

73 24.7 88 12.7 103 5.2

74 23.8 89 12.0 104 4.9

75 22.9 90 11.4 105 4.5

76 22.0 91 10.8 106 4.2

77 21.2 92 10.2 107 3.9

78 20.3 93 9.6 108 3.7

79 19.5 94 9.1 109 3.4

80 18.7 95 8.6 110 3.1

81 17.9 96 8.1 111 2.9

82 17.1 97 7.6 112 2.6

83 16.3 98 7.1 113 2.4

84 15.5 99 6.7 114 2.1

115 and over 1.9

Tip: In order for the younger spouse rule to apply, your spouse must be your sole beneficiary forthe entire distribution year. Your spouse will be considered your sole beneficiary for the entireyear if he or she is your sole beneficiary on January 1 of the year, and you don't change yourbeneficiary during the year. In other words, even if your spouse dies, or you get divorced afterJanuary 1, you can use the younger spouse rule for that distribution year (but not for distributionyears that follow). In the case of divorce, however, if you designate a new beneficiary prior to theend of the distribution year, you cannot use the younger spouse rule (since your former spousewill not be considered your sole beneficiary for the entire year).

If you have multiple IRAs, an RMD is calculated separately for each IRA. However, you canwithdraw the required amount from any one or more IRAs. Inherited IRAs are not included withyour own for this purpose. [Similar rules apply to Section 403(b) accounts.] If you participate inmore than one employer retirement plan, your RMD is calculated separately for each plan andmust be paid from that plan.

Should You Delay Your First RMD?Remember, you have the option of delayingyour first distribution until April 1 following thecalendar year in which you reach age 70½ (orApril 1 following the calendar year in whichyou retire, in some cases).

You might delay taking your first distribution ifyou expect to be in a lower income tax bracketin the following year, perhaps because youare no longer working or will have less incomefrom other sources. However, if you wait untilthe following year to take your first distribution,your second distribution must be made on or

by December 31 of that same year.

Receiving your first and second RMDs in thesame year may not be in your best interest.Since this "double" distribution will increaseyour taxable income for the year, it willprobably cause you to pay more in federal andstate income taxes. It could even push youinto a higher federal income tax bracket for theyear. In addition, the increased income maycause you to lose the benefit of certain taxexemptions and deductions that mightotherwise be available to you. So the decision

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of whether to delay your first requireddistribution can be important, and should bebased on your personal tax situation.

Example(s): You are single and reached age70½ in 2018. You had taxable income of$25,000 in 2018 and expect to have $25,000in taxable income in 2019. You have money ina traditional IRA and determined that yourRMD from the IRA for 2018 was $50,000, andthat your RMD for 2019 is $50,000 as well.You took your first RMD in 2018. The $50,000was included in your income for 2018, whichincreased your taxable income to $75,000. Ata marginal tax rate of 22%, federal income taxwas approximately $12,439 for 2018(assuming no other variables). In 2019, youtake your second RMD. The $50,000 will beincluded in your income for 2019, increasing

Now suppose you did not take your first RMDin 2018 but waited until 2019. In 2018, yourtaxable income was $25,000. At a marginaltax rate of 12%, your federal income tax was$2,596 for 2018. In 2019, you take both yourfirst RMD ($50,000) and your second RMD($50,000). These two $50,000 distributions willincrease your taxable income in 2019 to$125,000, taxable at a marginal rate of 24%,resulting in federal income tax ofapproximately $22,956. Total federal incometax for 2018 and 2019 will be $25,552 — $755more than if you had taken your first RMD in2018.

your taxable income to $75,000 and resultingin federal income tax of approximately$12,358. Total federal income tax for 2018and 2019 will be $24,797.

What If You Fail to Take RMDs As Required?You can always withdraw more than you arerequired to from your IRAs and retirementplans. However, if you fail to take at least theRMD for any year (or if you take it too late),you will be subject to a federal penalty. Thepenalty is a 50% excise tax on the amount bywhich the RMD exceeds the distributionsactually made to you during the taxable year.

Example: You own one traditional IRA andcompute your RMD for year one to be $7,000.You take only $2,000 as a year-onedistribution from the IRA by the date required.Since you are required to take at least $7,000as a distribution but have only taken $2,000,your RMD exceeds the amount of your actualdistribution by $5,000 ($7,000 minus $2,000).You are therefore subject to an excise tax of$2,500 (50% of $5,000).

Technical Note: You report and pay the 50%tax on your federal income tax return for thecalendar year in which the distribution shortfalloccurs. You should complete and attach IRSForm 5329, "Additional Taxes on QualifiedPlans (Including IRAs) and Other Tax-FavoredAccounts." The tax can be waived if you candemonstrate that your failure to take adequatedistributions was due to "reasonable error"and that steps have been taken to correct theinsufficient distribution. You must file Form5329 with your individual income tax return,and attach a letter of explanation. The IRS willreview the information you provide and decidewhether to grant your request for a waiver.

Can You Satisfy the RMD Rules with the Purchaseof an Annuity Contract?Your purchase of an annuity contract with thefunds in your IRA or retirement plan satisfiesthe RMD rules if all of the following are true:

• Payments are made at least yearly• The annuity is purchased on or before the

date that distributions are required to begin• The annuity is calculated and paid over a

time period that does not exceed thosepermitted under the RMD rules

• Payments, with certain exceptions, do notincrease

If you participate in a 401(k) (or similar plan)or an IRA, you may also be able to use up to

25% of your account balances (up to amaximum of $130,000 from all accounts,indexed for inflation) to purchase a qualifyinglongevity annuity (or QLAC). The value of theQLAC is disregarded when you calculate theamount of RMDs you are otherwise requiredto take from your account each year.Payments from the QLAC can be delayed upto age 85, and are treated as satisfying theRMD rules when paid. The rules can becomplicated, and QLACs are not right foreveryone, so be sure to consult a qualifiedprofessional for further information.

Generally, annuity contractshave fees and expenses,limitations, exclusions,holding periods, terminationprovisions, and terms forkeeping the annuity in force.It is important to understandthat purchasing an annuityin an IRA or anemployer-sponsoredretirement plan provides noadditional tax benefits thanthose available through thetax-deferred retirement plan.

Annuity guarantees aresubject to the claims-payingability and financial strengthof the annuity issuer.

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Tax Considerations

Income tax

Like other distributions from traditional IRAsand retirement plans, RMDs are generallysubject to federal (and possibly state) incometax for the year in which you receive thedistribution. However, a portion of the fundsdistributed to you may not be subject to tax ifyou have ever made after-tax contributions toyour IRA or plan.

For example, if some of your traditional IRAcontributions were not tax deductible, thosecontribution amounts will be income tax freewhen you withdraw them from the IRA. This issimply because those dollars were alreadytaxed once. You should consult a taxprofessional if your IRA or plan contains anyafter-tax contributions.

Your distribution may also be income-tax-freeif it is a qualified distribution from a Roth401(k), 403(b), or 457(b) account. Generally,an RMD is qualified if your Roth accountsatisfies a five-year holding periodrequirement. If your RMD is not qualified, thengenerally only the portion of the RMD paidfrom your Roth account that representsearnings will be taxable to you — your owncontributions to the Roth account are returnedtax free.

Because RMDs are paid after you turn age70½, or after your death, they are not subjectto early distribution penalties. Income taxes onRMDs paid to your beneficiary after yourdeath are generally calculated in the samemanner as if the payments were made to you.

Caution: Taxable income from an IRA orretirement plan is taxed at ordinary income taxrates even if the funds represent long-term

Estate tax

You first need to determine whether or not thefederal estate tax will apply to you. If you donot expect the value of your taxable estate toexceed the federal applicable exclusionamount then federal estate tax may not be aconcern for you. However, state death (orinheritance) tax may be a concern. In somecases, your assets may be subject to morethan one type of death tax — for example, thegeneration-skipping transfer tax may alsoapply. Consider getting professional advice toestablish appropriate strategies to help reduceand possibly eliminate your future estate taxliability.

For example, you might reduce the value ofyour taxable estate by gifting all or part of yourrequired distribution to your spouse or others.Making gifts to your spouse can sometimeswork well if your taxable estate is larger thanyour spouse's, and one or both of you willleave an estate larger than the applicableexclusion amount. This strategy can provideyour spouse with additional assets to betterutilize his or her applicable exclusion amount,thereby minimizing the combined estate taxliability of you and your spouse. Be sure toconsult an estate planning attorney, however,about this and other possible strategies.

Caution: In addition to federal estate tax, yourstate may impose its own estate or death tax.Consult an estate planning attorney for details.

capital gain or qualifying dividends from stockheld within the plan. Note that there arespecial rules for capital gain treatment in somecases on distributions fromemployer-sponsored retirement plans.

Inherited IRAs and Retirement PlansYour RMDs from your IRA or plan will ceaseafter your death, but your designatedbeneficiary (or beneficiaries) will then typicallybe required to take minimum distributions fromthe account. A spouse beneficiary maygenerally roll over an inherited IRA or planaccount into an IRA in the spouse's ownname, allowing the spouse to delay taking

As with required lifetime distributions, properplanning for required post-death distributionsis essential. You should consult an estateplanning attorney and/or a tax professional.

additional required distributions until he or sheturns 70½.

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Planning for Good®Karen Melo Ticas, CFP®,

RICP®Financial Advisor

- - - - - - - - - - - - - - -501 Wampanoag Trail, #200

East Providence, RI 02915(877) KMT-PLAN

karen@planningforgood.netwww.planningforgood.net

November 04, 2019Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2019

Karen Melo Ticas is a registered representative of and offers securities, investment advisory and financialplanning services through MML Investors Services, LLC. Member SIPC. www.SIPC.org . Home office: 200Clarendon Street, 19th & 25th Floors, Boston, MA 02116. 617-585-4500.

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