5 Questions with Fidelity explores many of the more complicated aspects of RMDs, including when to take them, their changing rules, and potential penalties. We’ll also give you strategies for managing their impact on your taxable income. This episode features Rita Assaf, Vice President, Retirement Savings at Fidelity, and is hosted by Suzie Allen, Vice President, Insights from Fidelity Wealth Management℠.
Questions? Drop them below 👇 and we’ll reply right in the comments.
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Retirement can be a daunting prospect for many individuals, with one of the biggest concerns being how to manage required minimum distributions (RMDs) from retirement accounts. Fidelity Investments, a leading financial services company, offers expert advice on understanding and managing RMDs to help retirees navigate this complex aspect of retirement planning.
To shed light on this important topic, here are 5 questions with Fidelity to help individuals gain a better understanding of RMDs and how to effectively manage them.
1. What are RMDs and why are they important?
RMDs are mandatory withdrawals that individuals must take from their retirement accounts, such as traditional IRAs and 401(k) plans, once they reach a certain age (currently 72 for most individuals). These withdrawals are required by the IRS to ensure that individuals begin to withdraw and pay taxes on their retirement savings. Failing to take RMDs can result in significant penalties, making it crucial for retirees to understand and manage these distributions effectively.
2. How can individuals calculate their RMDs?
Fidelity recommends that individuals use the IRS Uniform Lifetime Table to calculate their RMDs for traditional IRAs and other retirement accounts. This table provides factors based on the individual’s age and account balance, allowing them to determine the amount they are required to withdraw each year. Fidelity also offers online tools and resources to help individuals easily calculate their RMDs and stay on track with their withdrawals.
3. What are the tax implications of RMDs?
RMDs are subject to income tax, meaning that individuals must include the withdrawals as part of their taxable income for the year in which they are taken. Fidelity emphasizes the importance of planning for the tax implications of RMDs and suggests working with a financial advisor to develop a tax-efficient strategy for managing these distributions.
4. What are some strategies for managing RMDs?
Fidelity suggests several strategies for managing RMDs, including reinvesting the proceeds into non-retirement accounts, using the distributions for living expenses, and exploring qualified charitable distributions (QCDs) for those who are charitably inclined. By strategically managing RMDs, individuals can minimize their tax burden and make the most of their retirement savings.
5. How can Fidelity help individuals with RMDs?
Fidelity offers a range of resources and support to help individuals understand and manage their RMDs. From educational articles and videos to personalized guidance from financial professionals, Fidelity is committed to empowering retirees with the knowledge and tools they need to navigate the complexities of RMDs and make informed decisions about their retirement finances.
In conclusion, understanding and managing RMDs is a critical aspect of retirement planning, and Fidelity Investments is dedicated to providing individuals with the guidance and support they need to navigate this process effectively. By taking the time to educate themselves and leverage the resources available, retirees can confidently manage their RMDs and make the most of their retirement savings.
Rita said, "… the investment gains were never taxed." But that's not the point at all with RMDs and tax deferred accounts. The point is that the CONTRIBUTIONS were never taxed. The accounts are TAX DEFERRED.
In fact if your tax rate at contribution and at distribution are the same, the net effect is that the investment gains will still NEVER BE TAXED, even when you take your RMDs. How is that? It's because the way the math works out Traditional IRAs and Roth IRAs are the same if tax rates are the same. And the advantage to both are that the gains on your investments are tax free.
What happens with a tax deferred (T-IRA) account is that you've set aside income AND the deferred taxes and invested BOTH. When it comes time to take a distribution, the government gets back your deferred taxes PLUS the gains you made on those deferred taxes. But in exchange you get to keep your money after the deferred taxes are owed, plus any investment gains you made on that money.
So no. RMDs have nothing to do with the investment gains never being taxed. And those gains never will be taxed as long as you take the distributions at a tax rate at or below your original contribution rate.