If you have an IRA account held at Schwab, and if you had your 70th birthday prior to July 1st of this year then you should probably begin taking your Required Minimum Distributions before the end of this year. Technically, IRS rules say that if you’ve only just turned 70 1/2 you don’t have to begin until next year, but if you wait you must take two distributions next year. Therefore, unless you expect your income to be substantially lower next year you are likely better off taking your first RMD this year.
How much must you distribute from your IRA account in order to fulfil your requirement? If your Schwab account was set up and funded before the end of last year, and if your IRA account is not an inherited account Schwab will have computed your RMD and published the amount on your Schwab monthly statements. You should look for the following text below the Distribution Summary section:
Tax Year 2015 Required Minimum Distribution, which you must take by 12/31/2015: $xx,xxx.xx
If you have distributed this amount or more during the year then you will have met your distribution requirement, assuming that your Schwab IRA account is the only IRA account that you own. However, if you own other IRA accounts you will need to compute your RMD based on the total value of all of your IRA accounts. You do not need to take distributions from each account, but you must compute the RMD amount based on the total value of all IRA accounts and take the distribution from at least one of the accounts.
Life in the 21st century is complex, and meeting IRS requirements regarding tax deferred accounts is no exception to this condition. Let me know if you have questions.
The fourth quarter is off to a good start. As of Friday’s close our client accounts are up an average of 4.2%, ranging from +2.01% to +5.70%.
The Internal Revenue Service has announced cost‑of‑living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2016. In general, the pension plan limitations will not change for 2016 because the increase in the cost-of-living index did not meet the statutory thresholds that trigger their adjustment. However, other limitations will change because the increase in the index did meet the statutory thresholds. You can review the particulars here.
Referrals? We love getting referrals! When you refer someone to us you go to the top of our list of favorite people. And we say, “Thank You.”
So, here is today’s question: Should you begin taking your social security retirement income benefit at age 62, 65, FRA, or 70?
The answer is: It depends.
Of course, right? As was mentioned earlier in this blog entry, life in the 21st century is complex. There are quite a few variables affecting the proper answer to this question. Assumptions must be made. What will the investment return be? Will the Social Security benefit increase with inflation, or will it lag? Will your particular inflation rate be more, or less than the general rate of inflation? How will your particular cash flows be affected by your choice? How long will you receive benefits? Etc.
In doing cash flow modeling with my clients for quite a few years now I have sometimes been surprised that waiting to age 70 may not be the best answer for a particular client, or taking earlier may not be the best. What I do know is that the best way to answer the question is to do the cash flow modeling.
A while back I stated in one of my blog posts that good financial planning involves more than investment strategies, more than alphas and betas, that there is also gamma, which can be every bit as important. Cash flow modeling to answer questions like the timing of social security benefits is one example.
As I have said many times before, clients of investment advisers greatly reduce their risk of being defrauded by choosing advisers that are separate from the custodians of their accounts. My point has been supported by numerous examples, including the infamous Bernie Madoff case. Recently, a Maryland adviser admitted to the SEC that he has stolen nearly two million dollars from his clients, many elderly, by providing false account statements, trade confirms, etc. In this case, as in many others the Registered Investment Adviser and the Securities Broker-Dealer/Custodian are owned and operated by the same entities. Common ownership of these two functions does not provide the barrier to malfeasance that separate ownership can provide.
Our clients receive account information from us. They also receive information from the custodians that hold their assets, primarily Charles Schwab and Company. We have no control over the activities and reporting of the custodians. Our clients’ custodian reports serve to confirm our reports, and our reports serve to confirm theirs.
Years ago, when we were young adults, some of us newly married, Jayne and her sisters thought it would be fun to get together for some pumpkin carving and a chili dinner. It turned into an annual event. A bit later, as some of us had children, the fun increased. Later still the number of kids and their ages increased, and so did the number of pumpkins because not only were the parents doing the carving, but also the kids. As time progressed the designs got more complex. A mere jack-o-lantern was no longer acceptable. The kids got older. Some got married. Some of them now have their own kids. Some moved out of the area. But the annual pumpkin carving and chili dinner has continued. And so I present to you the results from yesterday’s (Sunday) pumpkin carving and chili dinner get together. Boo!