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How to Calculate Required Minimum Distributions RMDs?!

March 16, 2020

So we help a lot of our clients with Required Minimum Distributions (RMDs) and Retirement Withdrawals.

Retirement planning has two phases: accumulation and income. And our strength and our specialty and what we really excel in, we believe, is the income phase of retirement – that second phase of retirement planning.

Anybody can help you grow your money when the SMP 500 is up 30%, like it was in 2019, but not so much so when the market’s down and when the market’s volatile, and when you’re taking money out of your investments versus putting money in in your working career.

So, we all know what RMDs are, or should, Required Minimum Distributions the IRS mandates us that we take out withdrawals starting now at 72.

The rules changed in December or 2019 and we were able to take out those RMDs at 70 and 1/2. Now we’re forced to take those out at 72, if we weren’t already taking RMDs. And they’re mandatory withdrawals that we have to take out of our pre-taxed accounts, like IRAs, 401(k)s, TSPs and so on.

While a lot of our clients ask us, how do we calculate these RMDs? How do we know how much we take out? How much do we take out? Which accounts do we take them from? And so on. So here’s a factor payout chart from the IRS website and we have these factor numbers for every age you are.

Now those factor numbers, as you can see, go down. But the amount you have to take out goes up. Because think about it, if you’re 72 and you’re taking RMDs for the first time, you might only like to 85/86, you might only live to 90 years old.

The IRS and Uncle Sam only has 13-1601:37years on average to get as much money out of your pre-tax accounts for pre-tax revenue as possible. So the older you get, the more you have to take out of your pre-taxed accounts.

At 72, the amount you have to take out01:52of your pre-taxed account is just under 4%. At 75, the amount you have to take out of your pre-taxed accounts is 4.4%. At age 80, the amount that you have to take out is 5.5%. And at 90, the amount you have to take out, or the percentage you have to take out,02:11is over 8, approaching 9%.

So really, at 70 and 1/2 to 72 and beyond, your portfolio has to be earning 4% or more to keep up with these RMDs and retirement withdrawals.

If you have questions about how RMDs are going to affect you, if you have questions about how retirement withdrawals are going to effect your investment accounts, your retirement accounts, how taxes are going to effect those accounts as well, just call us, email us, visit our website, reach out to us and we’d be happy to explain how RMDs and retirement withdrawals with effect your retirement plan.