As life expectancy increases, many people want to defer making withdrawals from their retirement accounts for as long as possible to ensure that their nest eggs will meet their retirement income needs. But withdrawals must begin by a certain age to avoid penalties. If you are at least age 70.5 this year, you need to withdraw required minimum distribution (RMD) amounts from your Traditional IRA, SEP and SIMPLE IRA. Depending on the provisions of the plan, you may also need to withdraw from your qualified plan, 403(b) or 457(b) accounts. Despite these restrictions, however, there are certain strategies that you can apply to your retirement account withdrawals that will help you to preserve your account balance. Here we highlight some of these considerations.

Distributing from Designated IRAs
If you own multiple Traditional, SEP and SIMPLE IRAs, you must calculate the RMD amounts separately, but you can aggregate and distribute the RMD from one or more of those IRAs. When determining the IRA from which you'll distribute your RMD for the year, you may want to consider the following:

Equalizing balances for your beneficiaries

If you have multiple IRAs because you want to maintain separate IRAs for different beneficiaries, consider equalizing the balances, which may have changed as a result of withdrawals, contributions, fees and asset performance. For instance, if you designated three individuals as beneficiaries for each of your three IRAs and you want to leave the same amount for each of the beneficiaries, you may withdraw your RMD amount from the IRA with the highest balance. Alternately, you may transfer amounts between the IRAs to equalize the balances, and withdraw the applicable RMD amount from each IRA.

Culling low-performance assets
If you have multiple Traditional, SEP and SIMPLE IRAs, you can cull dead-weight assets from them by either liquidating the assets or distributing them from your IRAs. Check with your financial planner to determine whether there are assets that you should get rid of because they are either losing money, or not performing as well as the other assets in your IRA portfolio. If the plan is to get rid of those assets anyway, distributing instead of liquidating them could keep ticket charges (transaction fees) from being taken out of your IRA balance.

However, you must exercise caution when choosing this option. If the assets lose value after being distributed from your IRA, the upside is that you may be able to write off the losses - which would not have been an option had the losses occurred while the assets were in your IRA. On the other hand, if the performance of those assets improves, you will owe income taxes on the earnings. Consider also that capital gain/capital loss treatment can be applied to the earnings/losses - an option that is not available for gains/losses that occur in your IRA.

Notifying your IRA custodians
If you plan to aggregate your RMD and distribute the amounts for multiple IRAs from one of the IRAs, be sure to notify the other IRA custodians in writing, especially those that process automatic distributions that do not require your authorization for each year's RMD. Most importantly, notify the custodian of the IRA from which you will be making the withdrawal in a timely manner, to ensure that your RMD amount is distributed by the deadline. This will help to ensure that you do not owe penalties for failing to make timely RMD withdrawals. (To learn more, see Missed Your RMD Deadline? What To Do.)

Distributing from Your Qualified Plan, 403(b) and 457(b) Account
If you are still working for the employer that sponsored the qualified plan, 403(b) or 457(b) plan in which you participate, you may defer beginning your RMD until after you retire, if that option is available under the plan. When determining whether you should defer receiving RMDs from such accounts, have your financial consultant assess the performance of the assets in your portfolio and your income needs. If the assets are not performing well, then it may not make good financial sense to keep the amounts in your qualified plan account.
On the other hand, consider that withdrawing amounts from your qualified plan will increase your taxable income for the year and could possibly put you in a higher income tax bracket.* If you need the assets to cover your expenses, then this is a non-issue. However, if you already have other sources of income that are sufficient to meet your financial needs, it may not be such a good idea to withdraw amounts that would continue to accrue earnings on a tax-deferred basis if left in your qualified plan account.

*Note: If you plan to make cash donations to charity, you may be able to write off those donations and, therefore, offset income taxes generated as a result of the distributions. (For more information, see Gifting Your Retirement Assets To Charity.)

Roll Over Excess RMD Amounts
If you find that you have withdrawn more than is required to meet your RMD amount and you do not need the extra amount to cover your expenses, you can roll over the excess amount within 60 days of receipt. This will help you to preserve your retirement account balance and will allow the extra amounts to continue accruing earnings on a tax-deferred basis.

Taking RMDs from your retirement account is an inevitability. But like most inevitable occurrences, the end result will be determined by timing - that is, how long you can defer the action without penalties - and execution. Be sure to consult with your financial planner about these strategies and discuss whether there are other options that may suit your financial profile.

To learn more about RMD rules, see Tis The Season For Required Minimum Distributions, Avoiding RMD Pitfalls and Preparing For The RMD Season - Part 1 and Part 2.

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