Uncle Sam wants YOU… The Internal Revenue Service (IRS) requires all traditional individual retirement account (IRA) owners to take a distribution from their account every year after they turn 70 1/2. Failure to withdraw at least the required minimum distribution (RMD) will result in a 50% penalty payable to the IRS.
So, if an IRA owner age 73 forgets to take the $5,000 minimum withdrawal from his or her IRA at 72, he or she will be assessed a penalty of…[continued below video]
Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.
…$2,500. In addition, the account holder will still need to withdraw the $5,000 and pay taxes on the amount withdrawn. The particularly disturbing aspect of this penalty is the ramifications it holds for older adults who have become less cognative in their later years. The idea of a retiree being penalized for 50% for forgetting to take a distribution in a given year seems somewhat punitive considering the early withdrawal penalty is 10% prior to age 59 1/2.
RMDs are not only an issue for those over 70. If you have an inherited IRA (no matter your age), you are subject to RMDs as well and failure to take those RMDs will result in the same 50% penalty.
How Annuities Help Avoid Penalties
Many IRA/annuity owners will decide to turn on the income provision of their IRA annuity by the age of 70; and by doing so, this creates an automatic distribution that is often times sufficient enough to cover the distribution requirement for some or even all of any additional IRA accounts they may have. The IRS does not require that one takes withdrawals from each IRA account held. The IRS treats all of an individuals IRA holdings as an aggregate account balance and requires that withdrawals meet or exceed the amount needed to meet one’s RMD. This withdrawal can all come from one or multiple accounts.
Also, while it does not fully prevent the RMD requirement, the recent introduction of the longevity annuity can actually delay a portion of the RMD. A longevity annuity can be purchased using 25% of your IRA account balance or $125,000 whichever is less. The longevity annuity is designed to allow the account holder to delay receiving income from this account up to age 85; however, once the annuity payments begin, the distributions will be subject to taxation.
Here’s an article from Fox Business on what to do if you forget to take an RMD.
I’m guessing that your Individual Retirement Account (IRA) has not been a top priority recently. At this time of year, most of us get so wrapped up in, well, wrapping, as well as buying, decorating, cooking, preparing, cleaning and hosting, that we barely have time to think at all!
But if you rang in the new year without paying any attention to your IRA, you may have missed an important deadline. With expensive consequences.
By law once you reach ago 70½, you are required to begin taking a minimum amount out of your traditional IRA every year. In most cases, the deadline for taking your annual Required Minimum Distribution, or RMD, is Dec.31.
The exception to this deadline, is if this year you are making your very first RMD. To be exact- and in this case it really matters- the deadline for this first withdrawal is April 1 of the year after you reach 70½.
For instance, let’s say you turned 70 in May of 2013, that means you are 70½ in November 2013. Thus, you have until April 1, 2014 to take your 2013 RMD. (1)
After your first withdrawal, each subsequent one must be completed no later than Dec. 31 of that year. If you qualify to delay taking your initial RMD until April, you will have to take two withdrawals next year- the one for 2013 and the one for 2014.
You Inherited the IRA
Now let’s say you never contributed a dime to the IRA. Instead, it belonged to your mom who left it to you when she died. Technically, it isn’t even yours. In fact, your mom is still listed as the owner and you are named the “beneficiary.”
Nonetheless, the same rule about taking a Required Minimum Distribution by Dec. 31 each year still applies. No matter how old you are (3? 23? 53? 83?), the beneficiary of an inherited IRA must begin withdrawing a certain amount no later than December 31st of the year after the IRA owner died.
So, if mom died in 2012, your first RMD must be taken by Dec. 31, 2013.
Serious Consequences & How to Avoid Them
Whether the IRA is your own or inherited, failure to withdraw an RMD by the deadline results in one of the most onerous penalties in the tax code: 50%. That’s right. If you were supposed to take out a minimum of $4,000 and- oops!- did not do so, you have the privilege of writing the IRS a check for $2,000. Plus, of course, the income tax you owe because you withdrew money from a pre-tax account.
If you made this common mistake, don’t think the IRS will never notice. It might take a while, but the agency will eventually catch up with you. That’s because IRA custodians have to report which accounts are in RMD mode.
The IRS has a lot of flexibility to waive the penalty on a missed or late RMD. For instance, you could qualify for getting the penalty waived if you were affected by a natural disaster and records were lost, or you were in the hospital. Perhaps you had a death in the family. Or, you might have received incorrect advice from a financial advisor or IRA custodian. Waivers have even been granted to individuals who were unable to take their RMD because they were in jail!
The point is, you have a much better chance of escaping the 50% penalty if you contact the IRS before they contact you.
There are some simple- but specific- steps you have to take.
Correct Your Mistake ASAP
If you missed the RMD deadline, the first thing you need to do is withdraw the required amount as quickly as possible.
The minimum you have to take out of the IRA depends on several factors, such as whether it is your account or you inherited it, your marital status, etc… In most cases, the custodian of the IRA will help you calculate the amount. If you want to figure the amount yourself, head to the IRS website , and look for the “Forms and Publications” tab. Click on this and then enter “590” in the search box.
Publication 590 covers the basic IRA rules. Scroll down to the “Life Expectancy” tables in Appendix C (starting on p.93). Find the table that applies to you. For instance, if you inherited the IRA, you will use the “Single Life Expectancy” table. Locate your age as of the year you were supposed to take the RMD. Next to this, you’ll find your “Life Expectancy.”
For instance, say you were 53 years old in 2013 and neglected to take your minimum withdrawal from the IRA your mom left you. As you can see on the chart, your life expectancy is 31.4 years.
Next, you need to know what the inherited IRA was worth at the end of the previous year, i.e. December 31, 2012. If you don’t have a copy of the year-end statement, the IRA custodian can tell you. The minimum you should have withdrawn in 2013 is calculated as follows:
IRA Value on Dec. 31 of previous year/life expectancy factor
In the above example, if Mom’s IRA was worth $50,000 at the end of 2012, your 2013 RMD was: $50,000/31.4 = $1,592.36 (Note that the penalty for missing RMD deadline in this example exceeds $780!) [Read More at Fox]
Using OutCome Based Planning™ for Your Retirement
We practice and recommend a "Holistic - OutCome Based Planning™ process when considering annuities." This approach has the effect of balancing your overall portfolio so you can meet your retirement objectives by "first identifying the least amount of your investments or savings (if any) that should be considered for annuities." OutCome Based Planning™ analyzes and models multiple outcomes so you can clearly identify your best income and growth opportunities.
"The Annuity Guys will only call if you request help". Hence, when you are ready for specialized help we will be available."Working with an Experienced Fiduciary Financial Planner can help you Avoid a Trial & Error or Risk Based Retirement"
This type of approach does take considerably more time, effort and analysis which will show you mathematically the successful possibilities by comparing various outcomes rather than trying to sell or convince you of that "so-called one best solution." Clients frequently tell us that this process removes some of the confusion and emotion to help them objectively identify a better retirement plan; rather than just ending up with the most convincing salesperson or advisor.
When requesting help you can be assured of working with an experienced Annuity Guys' Retirement Planner who is independently insurance licensed and securities licensed as a fiduciary financial planner having access to the vast majority of annuity companies in helping you choose the best annuities using a holistic-outcome based planning approach. We consider the high quality advisor recommendations we make to our website visitors as a direct reflection back on our commitment to serve all client's with a high standard of excellence in financial planning for retirement.
Based on survey feedback on advisors from our website visitors, we eliminated about two-hundred local advisors and now only recommend a few that we consider experienced vetted Annuity Guys' Fiduciary Advisors. Many local advisors continue requesting us to recommend them as a vetted advisor. However, our reputation and future business is driven only by satisfied website visitors. So, unfortunately we've had to tell the vast majority of local advisors no, since we changed our business model four years ago. At that time we stopped trying to satisfy everyone with local advisors, we now primarily work with individuals who are comfortable using today's internet technology to their fullest advantage by working with a select group of vetted, experienced and knowledgeable Annuity Guys' Fiduciary Planners.
Selecting the Best Annuity & Retirement Income Advisor
Are you willing to work with one of our retirement and annuity advisors based on their experience and expertise as a first priority rather than being limited by a local or regional area? The good news is that technology has forever eliminated our geographical limitations and leveled the playing field for everyone! As a result of today's technological advances, all of us can now work confidently with experts in any field including personal finance. We are no longer confined by regional or local boundaries limiting our choices and ultimate success. A high quality advisor is now as close as a click or phone call away.
"There is no room for trial and error when it comes to choosing MarketFree® Annuities or a Successful Retirement Planner."
"There are no undo buttons in retirement so it is vitally important that you do it right the first time!"
We are fortunate to have a select few who we believe are truly the highest qualified advisors out of about two hundred licensed insurance agents that we eliminated. Your survey feedback is what helps us make these tough decisions. Our advisors have an independent financial practice, specializing in annuities and retirement planning, which helps ensure that you are given the best options available for your retirement planning.
"It takes an experienced expert to know how to structure annuities for income, inflation, growth, return of principal, and tax advantage."
"Anyone can sell you an annuity; however, it takes a truly qualified and experienced advisor to know how to structure them for income, inflation, growth, return of principal, and tax advantage. Typically, there is not just one that can accomplish all of these objectives. It is how an advisor structures multiple annuities in balancing your total portfolio that makes it possible to achieve your most important retirement objectives."
Why Searching for the Best Annuities on Your Own Can be so Frustrating...Almost everyone nowadays turns to the internet for answers on everything - from buying new widgets to researching just about everything under the sun; and finding the best annuity is no exception!At first, it may seem that researching will be straightforward but the more time you spend researching them, the more frustrating it can be. Why is this? First of all, it does not take long to realize that gimmicks abound - such as warnings and alerts from salesmen who just want your attention so they can sell you one or the "too good to be true" claims of 8% to 14% **guaranteed interest and of course the claim that you can get the full market upside with no downside risk! If you have done any research you have heard all of these claims in advertising which are mostly half truths and not fully explained.So how can you find the best annuities on the internet? The truth is... you can't! And what is even more frustrating is all the conflicting points of view from so called experts. There are well over 6,000 different annuities - all designed for different reasons, so is it any wonder that the deck is stacked against the average researcher or do-it-yourselfer. Add to that the fact that they pay high enough commissions to attract a plethora of both good and bad agents. This does not make annuities good or bad; they are simply a financial tool that truly benefit those who use them correctly.How can you find the best annuities for your unique situation?
- Use the internet cautiously;
- Work with a vetted and experienced specialist;
- Do not settle for that one dubious best plan. Compare multiple Outcome Based Plans to decide on the one that is truly best for you;
- Be keenly aware of scare tactics and hyperbole - avoid those advisors and websites;
- Avoid websites that are focused on rushing free reports, rates and quotes to get your contact information they are rushing you to speak with them, instead, take your time and choose someone you are more comfortable with that works on your time-table;
- Know the Five Vital Factors (listed above) that an experienced specialist must answer before helping you select the best options for your situation;
- Watch this telling video "Avoid Annuity Gimmicks, Amateurs and Charlatans"...
** Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. Annuities are not FDIC insured and it is possible to lose money.
They are insurance products that require a premium to be paid for purchase.
Annuities do not accept or receive deposits and are not to be confused with bank issued financial instruments.
During all video segments, Dick and Eric are referring to Fixed Annuities unless otherwise specified.
*Retirement Planning and annuity purchase assistance may be provided by Eric Judy or by referral to a recommended, experienced, Fiduciary Investment Advisor in helping our website visitors. Dick Van Dyke semi-retired from his Investment Advisory Practice in 2012 and now focuses on this website. He still maintains his insurance license in good standing and assists his current clients.
Our vetted and recommended Fiduciary Financial Planners are required to be properly licensed in assisting clients with their annuity and retirement planning needs. (Due diligence as a client is still always necessary when working with any advisor to check their current standing.)
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- MarketFree™ Annuity Definition: Any fixed annuity or portfolio of fixed annuities that protects principal / premium and growth by remaining market risk free.
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