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3rd Quarter 2017

Retiree Corner: How to Prepare for Your RMDs

How to Prepare for Your RMDs Once you turn 70½, you face an important new deadline every year – you must take required minimum distributions (RMDs) from your 457 plan and traditional IRAs. Here’s what you need to know to avoid a penalty, which can be as much as 50 percent of any required amount that you do not withdraw on time:

How to calculate RMDs. RMDs are based on the balance in your account at the end of the previous year and a life-expectancy factor from the IRS. You can add up the balance in all of your traditional IRA accounts, divide it by the life-expectancy factor, and withdraw the money from any of your traditional IRAs. If you have more than one 457 account, the required payout must be calculated and withdrawn separately from each account. See our RMD calculator at www.icmarc.org/rmdcalc for more information.

What’s the deadline? You generally need to withdraw the money by Dec. 31, but you have extra time to take your first RMD: In the year you turn age 70½, you can wait until April 1 of the following year to take your first withdrawal. If you delay, however, you’ll have to take two RMDs in one year. (If you’re still working at 70½, you can delay taking your RMD from your current employer’s 401 or 457 plan until you separate from service, but you must still take RMDs from your IRAs and former employers’ plans.)

How do I take my RMD? You can take the money anytime during the year. For ICMA-RC accounts, you can take your RMD with a partial lump sum request or with installment payments at your desired frequency. You can request this online or with a paper form. For 401 and 457 plans, if you don’t take your RMD by the third to last business day of December, ICMA-RC will automatically process your RMD.

Which investments do I tap? ICMA-RC participants can provide a depletion order for installment requests that specifies which investments to tap for the money (such as from a stable value fund). If you don’t choose the depletion order, ICMA-RC will pay the RMD pro rata from all of your investments.

You can give part or all of your IRA RMD directly to charity. After you turn age 70½ and must take RMDs, you also get the right to transfer up to $100,000 each year from your IRA to charity. This tax-free transfer counts as part or all of your RMD but isn’t included in your adjusted gross income. See Tax-Smart Ways to Give to Charity.

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