December main header 2019
  • Mort Reinhart
  • Required Minimum Distribution (RMD) Amounts

    Must be Made by December 31, 2019  


    In today’s world, everything has been reduced to code. As an example, modern youth uses the phrase LOL for a variety of expressions, such as Laughing Out Loud or Lots of Love. Those of us who are not as savvy as the younger generation (anyone over 50) might even think it means Lots of Luck. Being well beyond 50, I am not quite sure which of the above explanations is hip enough to use, so I am forced to speak in whole phrases of what is known as the English language.


    There is, however, a language that does use code that those of us who are reaching (or already have reached) the golden years of retirement use, a language that the younger generation doesn’t understand any more than we older folks understand their language. Just think of IRAs, 403(b) plans, 401(k) plans, DC plans, DB plans, Social Security, RMDs, ERISA and Medicare Advantage plans, to name a few. I must admit that these words are not as hip as LOL, but they do have distinct meanings for a segment of the population which understands that each of them is a “code” for something more distinct.


    One of these “code” items is particularly important at this time of the year because December 31, 2019 is not only the last day of this year, but it is the last day that anyone 70.5 or older with a tax-deferred plan must withdraw (make a distribution of) a portion of funds that have been previously sheltered from Federal and state taxation or face a  50% penalty on the required funds not withdrawn. (Yes, that is 50 percent.) Plans that fall under the term tax-deferred include IRAs, both regular IRAs and Roth IRAs, 403(b)s, 401(k)s, 457(b)s, and SEPs.


    Educators In New Jersey who have been contributing to their 403(b) plans and their 457(b) plans through their school districts are affected by these rules. It should be noted that withdrawals from these plans can be made prior to age 70.5, with some restrictions, but after reaching 70.5, every participant in one of the plans must withdraw a sum of money each year. The amount withdrawn each year if based upon a formula that takes into account the total amount of the plan assets on the previous December 31st and a factor based on the age of the participant. The minimum amount is determined by dividing the total value of the account by the age factor. As an example, the age factor for a participant age 75 is 22.9. If the account of the participant had a value of $250,000 on the previous December 31st, the Required Minimum Distribution would be $10,917.03 ($250,000 divided by 22.9 = 410,917.03). Each year, the RMD would be recalculated using the December 31st plan value and the new age factor. (A recent announcement by the IRS stated that the age table was being revised for 2021. The new table will incorporate the increase in life span for United States citizens that have taken place in recent years. The new table will mean that the yearly required distribution will be lower.)


    Of course, all monies withdrawn from tax-deferred plans are subject to Federal and state taxes.