Retirement is a popular topic of discussion and, in some cases, an item of concern. There have been television commercials of “What is your number?” and “Do you have enough money for retirement?” This Quarter's newsletter discusses some of the factors that lead to a successful (financial) retirement. These factors can be complex and our discussion here is purely a cursory one.
We, at Paragon Financial Advisors, will be happy
to have a more in-depth conversation with you about
your personal circumstances. One particular success
factor listed in Part 2 (portfolio expense) is one we
monitor. Any mutual funds chosen for our client
portfolios have no sales charges (for sales or purchases)
and we try to select appropriate mutual funds with
minimal expense ratios. For appropriate accounts, we
select individual securities; this selection eliminates
expense ratios completely.
In addition, we at Paragon
have negotiated lower security transaction fees for
client transactions—again reducing the expense of
The final item discussed is a graphical chart of funds
flowing into and out of stock and bond mutual funds.
The bottom line is most investors do the wrong
thing—selling when they should be buying and vice
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Tuesday, March 31, 2015
Friday, March 27, 2015
Have You Taken Your Required Minimum Distribution Yet? The April 1st deadline is almost here!
Unfortunately, you cannot keep funds inside a Traditional IRA forever; eventually the IRS will require you to take taxable distributions.
What is an RMD?
During the calendar year you turn age 70 ½ is when the IRS mandates that you start taking annual taxable distributions from your Traditional IRA and Qualified Retirement Plans. Accounts that could possibly be affected are:
- Rollover IRA
- SEP IRA
- SIMPLE IRA
- Profit Sharing Plan
- Money Purchase Pension Plan
- Individual 401(k)
- Some beneficiary “Inherited” IRAs
Does this affect me?
The April 1st, 2015 deadline applies specifically to those individuals who turned 70 ½ in 2014. If you have or are turning 70 ½ in 2015, your first RMD must be made by April 1, 2016. It is very important to note that the April 1 deadline only applies to the first RMD; all subsequent withdrawals must be made by December 31st of that calendar year.
The April 1 deadline is mandatory for all owners of traditional IRAs and most participants in workplace retirement plans. However, some individuals with employer plans can wait longer to receive their RMD but this is usually because the individual is still working, and if their plan allows, can wait until April 1 after the year they officially retire.
How is an RMD calculated?
Affected taxpayers who turned 70 ½ during 2014 must figure the RMD for the first year using the life expectancy as of their birthday in 2014 and their account balance as of Dec. 31, 2013. For all other years individuals must calculate the distribution by dividing the Year-End balance of their account by the Uniform Lifetime Factor, which is obtained from a standardized IRS Table. If you have more than one Traditional or qualified account then the calculation must be made separately on each of them. However, you can total these minimum amounts and take the total from any one or more of the IRAs.
Is there a penalty if I don’t?
Yes, IRS imposes a penalty for allowing excess amounts to accumulate, ie.. failing to take the required minimum distribution. If your distribution for the year is less than the required minimum you may have to pay a 50% excise tax for that year on the amount not distributed as required.
The Bottom Line
The good news is if you have chosen to take periodic withdraws from your traditional accounts you may have already surpassed the minimum distribution required by the IRS. Here at Paragon Financial Advisors we want everyone to hang onto their hard earned money. Contact your advisor today to see if you are affected. If you are turning 70 this year, CONGRATS! Now it’s time to plan for next year’s RMD.
Please consult with your tax advisor to discuss your particular situation. Paragon Financial Advisors is a fee-only registered investment advisory company located in College Station, Texas. We offer financial planning and investment management.
Resources and Further Reading
IRS Publication 590 (Individual Retirement Arrangements)
- Page 34: When Must You Withdraw Assets (Required Minimum Distributions
IRS Publication 575 (Pension and Annuity Income)
- Page 35: Tax on Excess Accumulation
IRS Form 5329 (Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts
- Part 8: Additional Tax on Excess Accumulation