Baby Boomers Meeting Required Minimum Distributions

The leading edge of the Baby Boomer generation (those born between 1946 and 1964) turned age 70 last year.  The first required minimum distribution from IRAs must be made no later than April 1 of the year after the year the IRA owner turns age 70½.  Although many people withdraw funds earlier (generally, penalty-free withdrawals may begin at age 59½), some wait as long as possible, allowing the funds to continue growing tax-free.  In calculating the RMD, the value of all accounts are aggregated and divided by the appropriate life expectancy table.  However, the withdrawal does not have to come out of all accounts proportionally.  Clients may have multiple IRAs (e.g., roll-over accounts from an employer’s 401(k) or inherited IRAs).  Instead, the money can be withdrawn from the account or accounts earning the lowest rate of return, allowing higher-return funds to continue earning tax-free.  Philanthropic clients might find it more satisfying to direct the IRA custodian to send all or a portion of the required minimum distribution (up to $100,000) directly to charity.  Although no charitable deduction is allowed, the IRA owner saves taxes by avoiding tax that would otherwise be owed on the distribution.  Clients must have reached age 70½ at the time of the transfer to charity.


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