Helping clients with their required minimum distributions (RMDs)

Ways to assist clients who need to understand, prepare for, and comply with RMD requirements

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You may have worked with clients throughout their lives on their retirement savings strategies to help them accumulate a nest egg for retirement. As you know, when they reach RMD age, the money accumulated in qualified (pre-tax) retirement savings plans may be subject to required minimum distributions – RMDs.

While this may seem simple at first, not all types of retirement arrangements and qualified plans require distributions, follow the same required beginning date, or have the same exceptions to the rules. Financial professionals, along with the client’s tax professional, may be able to help clients who need to understand, prepare for, and comply with RMD requirements – especially from a tax and financial perspective.

RMD rules, requirements, and exceptions vary

Generally, the deadline for taking RMDs is December 31, every year. Clients can delay their initial RMD according to certain options, but this could impact their taxes and future RMDs later on. Additionally, if a client chooses to delay their initial distribution for the first year, they’ll need to take two RMDs in the following year.

Additional exceptions may also apply. For example, if a client’s plan allows and they own less than 5% of a company, they may be able to defer their RMD until the year they retire. Certain RMD rules also apply if an individual inherits a qualified plan or an IRA, including a Roth IRA.

Consequences if the RMD deadline is missed

If a client misses the RMD deadline or fails to withdraw the proper amount, they may need to pay an excise tax to the IRS – up to 50% of the amount that wasn’t taken out. While it is the client’s responsibility as the IRA owner to ensure the correct amount of their RMD is distributed, IRA providers may consult with them to help them estimate or calculate the RMD on their behalf. If you haven’t already, consider this an opportunity to reach out to your clients affected by RMDs before the end of the year.

What options do clients have if they don’t need the income provided by their RMD?

Whether they need the income or not, clients are required to take their RMDs. However, there are many ways to use those RMDs. For example, after their RMD is distributed, you could work with them to reinvest their RMDs with potential for growth, or pass along for legacy goals. Additionally, clients may wish to put their RMD toward a nontaxable qualified charitable distribution – up to $100,000 annually – from a traditional IRA if certain requirements are met.

Start the RMD conversation

RMDs can have different implications, depending on the client’s needs for day-to-day income. Financial professionals can be an important ally for clients who need to understand, prepare for, and comply with RMD requirements – especially from a tax and financial perspective.

To help you talk with clients about navigating their RMDs, direct them to Required minimum distributions. Additionally, if you are appointed with Allianz, log in to access additional tools and materials to help further guide the conversation.

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This content is for general educational purposes only. It is not intended to provide fiduciary, tax, or legal advice and cannot be used to avoid tax penalties; nor is it intended to market, promote, or recommend any tax plan or arrangement. Allianz Life Insurance Company of North America, its affiliates, and their employees and representatives do not give legal or tax advice. Customers are encouraged to consult with their own legal, tax, and financial professionals for specific advice or product recommendations.

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