So we’re now into the final quarter of 2017, if you can believe that. This means you’ve got fewer than three months to make sure that your 2017 Required Minimum Distribution is satisfied. If you don’t take out the required minimum on time, you’ll pay an extra penalty tax of 50 percent of the amount that you missed. Not good.
For some of you, if you’ve been supplementing your income with funds from your IRA, this probably isn’t an issue. You may have already taken out more than is required, so these RMD issues won’t affect you. But there are others out there who don’t need the funds from their retirement accounts, and they’re only making withdrawals because the government is forcing them to do so.
If you don’t need the money from your IRA or other retirement accounts, there’s nothing you can do about having to take your minimum distributions. They are, after all, “required.” But if your concern is that you don’t want to sell the securities in those accounts to meet the RMDs because you believe it’s a bad time to sell them, I’m going to let you in on a little-known secret: you can take what’s called an “in-kind distribution” from your retirement plan.
Remember, the rules don’t require that you take cash out of your IRA. They only say that a certain amount has to be distributed once you reach RMD age so that you can pay taxes on it.
So here’s what you do:
Figure out the amount you need to withdraw to satisfy the minimums. Your advisor can help you with this if you’re unsure how to do it.
Then direct your IRA custodian to transfer an amount of fund shares or stock shares whose total value equals the RMD from the IRA and into your personal taxable account.
Of course, you’ll have to pay the taxes on those assets from other sources. But now your RMD is satisfied, and you still own those shares, which now would reside in your post-tax account.
I said it’s a little-known secret, and guess what, even Congress didn’t know about it back in 2009, when they suspended RMDs for one tax year so that people didn’t have to sell securities when the stock prices were at their lows. But if they’d just simply done an in-kind distribution, they would have removed shares at a lower price, AND they would have been able to keep the securities while they waited for the markets to come back – which they ultimately did. This “recovery” would happen outside the IRA and not be part of future RMDs.
So as we approach the end of the year, now is a great time to get with your advisor to help answer this question: what’s your RMD strategy?