1 "PNC Employee Education" (243047424) 00:00:06.192 --> 00:00:18.569
Greetings! My name is Charles Cummings. I'm a Senior Level Employee Education Consultant with PNC, and today, we're going to be talking about money in, money out: contributions, rollovers, and distributions.

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PNC conducts these webinars as a way to provide additional education on various topics. Here in PNC Retirement Solutions, retirement plans are our expertise.

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It's what we work with day in and day out. So, it's a topic we are very passionate about.

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Most times our webinar topics are centered specifically around retirement so that we can continue to bring you important and quality education to help you manage your retirement account.

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So, let's get started. Money is about a lot more than paper or coins. It's about value and understanding how money fits into our lives.

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And it's never too early, or too late to start planning, saving, and putting smart financial choices into action.

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That said, let's take a look at some important financial matters that

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people may need to be thinking about

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in regard to saving for retirement. Today's agenda is as follows:

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In Section 1, we want to talk about contributions, the varying types of contributions, and how you can contribute to your retirement plan. In Section 2,

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we're going to discuss distributions and rollovers.

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Again, there are varying types of distributions as well as different types of rollovers and we'll discuss what they are in Section 2.

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In Section 3, we want to discuss a type of distribution, which is the Required Minimum Distribution.

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And then Section 4, we'll wrap things up with a summary of everything we've talked about during the course of this webinar.

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We'll start by discussing the employee contribution limits for

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2023 and 2024. The key limits for 2023 within 401(k) and 403(b) elective deferrals for employees under the age of 50 was $22,500.

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In 2024, that amount will increase slightly by $500 to $23,000.

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Catch-up Contributions are an additional contribution amount allowed for participants that are 50 years of age or older. In 2023, the Catch-up Contribution amount was $7,500

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and that remains the same for 2024, $7,500.

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There's generally two ways that employees can contribute to their retirement plans:

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traditional pre-tax contributions or Roth and/or Roth contributions. We asked that you check your Summary Plan Document to see if both contribution options are available in your plan.

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Pre-tax contributions, which means the money you contribute

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is pre-taxed so therefore it goes into the account before federal and most state taxes are taken out, so you pay less taxes today.

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Your taxes are deferred until you start withdrawing from your account.

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With Roth contributions the money you contribute will be taxed at your current tax rate. However,

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You pay no taxes on qualified distributions. A qualified distribution may be taken if you are at least 59 and a 1/2 years of age, and the account has been open for at least 5 years.

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With again the contribution limit for 2024 is going to be $23,000 so on this slide we want to talk about how you can max out your contributions to get the most bang for your buck when contributing to your workplace retirement plan. In order to contribute the maximum amount for 2024 of $23,000,

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a participant would have to make a monthly contribution, on average, of $1,917.

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In order for individuals that are 50

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and older to max out their contributions in 2024,

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you would be able to max out an amount of at $30,500.

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So, therefore, your monthly contribution would be $2,542 in order to max out, if you were age 50 or older.

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Contributions to the plan will come directly from your paycheck.

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You decide how much to contribute and can change your contribution amounts

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either through your Human Resources Department, or usually through your Recordkeeper's website.

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Here are a few examples of what it looks like based on your annual compensation

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if you were to make contributions to your

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workplace retirement plan. We'll use $50,000 as the general example.

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So, if you were earning $50,000 a year, and you were contributing 2% of your salary, your contributions would be $19.23.

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If you were to contribute 6% using that same $50,000 annual compensation,

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your contribution amount would be $57.69. So, I won't read each of them, but you can see based on the varying

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annual compensation amounts and the varying contribution percentages,

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how it would impact your take home pay if you were to contribute

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to your workplace retirement plan.

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On average, most financial professionals state that we should be aiming for anywhere between 10% to 15%

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of our compensation towards our workplace retirement plan, in order to reach our retirement savings goals. And this can be accomplished if, in fact, you can't do it right away by utilizing the 1% method.

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Together with other steps, this can help achieve the goal of maintaining your current lifestyle in retirement. While 15% may seem like a lot,

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if you have a 401(k) or other workplace retirement account with an employer match or Profit Sharing contribution, that employer match or Profit Sharing counts towards your annual goal of 15% contribution to your retirement plan.

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Now, let's move on to discuss the topics of rollovers.

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Depending on your retirement plan, rollovers may be accepted either immediately or once eligible for the plan. Depending on the type of rollover you execute, rollovers can maintain the tax deferral status on your investments. Additionally, the IRS has a rollover chart, as you can see here on the slide that will help with understanding what

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accounts can be rolled over. You can find the chart by logging on and going to https://www.irs.gov/pub/irs-tege/rollover_chart.pdf.

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https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

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And again, you can find that at the bottom of this slide, the bottom left-hand side of the slide.

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Your employer may make contributions to your retirement plan, as well.

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So, again, we that you check with your Human Resources Department to see if your company has a contribution matching formula.

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Remember, we talked on slide 8 about the 1% method?

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Well, any employer match contributions can help achieve the desired 15% contribution rate that most financial professionals feel we should be contributing to our workplace retirement plan by the age of 30 to 35.

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Now, let's discuss distributions and rollovers in more detail.

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Distributions are also referred to as withdrawals.

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That said, please note, most of the distribution options we will discuss in this presentation are specific to define the contribution plans, which are 401(k) and 403(b) plans. Individual Retirement Accounts, such as IRAs can have different rules restrictions for distributions.

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Therefore, we ask that you contact your IRA provider for specific rules on your IRA assets.

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And finally,

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distributions do not equal rollovers. Again, we will discuss what rollovers are and you'll see the distinction between the two.

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Although, we don't advocate for distributions from your retirement plan, other than at retirement, there are reasons why one would take a distribution from their retirement plan. Some of those reasons are as follows:

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For retirement, which is the entire purpose of the, the sole purpose of the retirement plan account.

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Death or disability. You are permitted to take distributions from your

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retirement plan in the event that you experience a death or a disability.

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Severance from employment. If you decide to leave your current employer,

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you can withdraw the assets from your workplace retirement plan and take them as a full distribution for yourself. And if you decide to do that, there may be that may cause a taxable event or if you separate from your existing or current employer and roll the money over to a new

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employer's account that's an option, as well.

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The plan terminates with no successor plan. If the plan is terminating, then you do have the right to remove your money and move it into either an Individual Retirement Account, take it as the distribution for yourself, which again may cause a taxable event or roll it into a new employer's plan.

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Once you reach age 59 and a 1/2. Once you reach age, 59 and a 1/2, the IRS allows you the opportunity to take distributions from your workplace retirement plan.

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If you're contributing with traditional pre-tax

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and/or Roth contributions, there still may be tax ramifications involved. If you take a distribution after reaching age 59 and a 1/2; however, there will no longer be a penalty associated for traditional pre-tax

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distributions once you reach the age 59 and a 1/2.

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And then some plans offer the opportunity to take a distribution if you experience a hardship situation. Some examples of hardship may be to prevent foreclosure or eviction

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from your primary residence. Your employer's plan will determine when distributions would be allowed. So again, we ask you to refer to your Summary Plan Description or Summary Plan Document located on your Recordkeeper's website.

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If you were opting to rollover to a new employer's plan,

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your assets will retain their tax deferral status provided you are directly rolling from the old employer to the new employer, and not taking any portion of that money for personal reasons.

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Rolling over to an Individual Retirement Plan, or an IRA, you would still retain your tax deferral status, again, as long as you're not taking any of that money as a personal distribution, if you are directly rolling it over

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from your current employer's plan, or former employer's plan into an Individual Retirement Plan.

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Cash distributions, meaning if, in fact, you have, a portion or all of the money sent directly to you,

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it would be a taxable event, because at that point, you're not rolling it over. You're taking it as a withdrawal or distribution. So, therefore, you would pay taxes on those assets at your current tax rate.

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Now, we're going to discuss some benefits of rolling over to a new employer's plan.

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So, if you were transferring assets from one tax advantage account to another tax advantage account, this allows you the ability to consolidate.

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There are no tax ramifications generally with that type of rollover. The potential for increased or different investment elections are selections are another benefit. You can contribute to build assets through continued contributions when you rollover from a former employer to

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a new employer, your assets are held in trust, which generally provides protection from creditors.

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So, these are some of the benefits when you move your assets from a former employer into a new employer plan. So now, let's explore what happens if you were to rollover your former employer assets into an Individual Retirement Plan, or an IRA. Some of those benefits include, again, no immediate tax obligation or withdrawal

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penalties with a direct rollover as long as it's completed within 60 days.

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Larger selection and full control over investment choices. So, you generally have exposure to a larger selection of investment choices within the IRA plan.

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You have the ability to consolidate retirement assets, which makes them easier to track because they're all consolidated into one place.

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You have the potential to convert traditional rollover IRA assets to Roth IRA assets. Now, understand when you do

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convert those traditional assets, IRA assets, to rollover assets to a Roth,

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you will pay taxes on the traditional assets based on your current tax rate

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during the conversion process. Another benefit is you have a potential to roll over to a new employer's plan at a later date provided you

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did not mix those assets with existing IRA assets.

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We talked about rolling over your assets from a former employer's plan to both

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an IRA and a new employer's plan. So, now let's discuss

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things you should consider before doing either of those. You should consider if there are any applicable fees for both plans. That's usually not the case nowadays, but there was a time where there may have cost you a fee, or you may have been charged a

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fee to roll over assets from a former employer's plan out of a former employer's plan into

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either an Individual Retirement Account, or Plan, or a Workplace Retirement Plan.

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The investment options.

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If the investment options within your former employer's plan are performing extremely well,

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you may not want to move those assets from the former employer's plan into your new employer's plan, or into an Individual Retirement Account. I can give you a quick example.

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Prior to coming to PNC, I worked for another institution, and the previous institution I work at, we had some mutual funds within our 401(k) Plan that were performing like gangbusters. And they were close to any new investors. So, therefore, I didn't want to lose my investment in those

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funds. So, therefore, I did not roll that money over to my PNC 401(k) Plan. I established an Individual Retirement Plan with my former employer so that I can maintain my investment in those mutual funds. So, that's just an example: if the investment offerings are performing extremely well it may not be the best thing to move it from

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the former employer into a new employer or an Individual Retirement Plan.

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Technology. Technology can pose a potential challenge in the event that your new employer's plan may not be as

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technologically savvy in terms of the Recordkeeper that manages those assets as your former employer's plan. So that could be a hindrance and may cause you not to want to move those assets. And then the opportunity of managing multiple accounts or consolidating may not

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interest you or it may interest you. If it does interest you then obviously rolling it over so you can consolidate and have everything in one place as we've mentioned in the previous slide could be very helpful. Some individuals like to earmark certain money for different things. So, therefore, they want they may want to keep them separate. So, again, these are just things you may want to give consideration

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to when you are looking to potentially move assets from a former employer's plan into either a new employer's plan or

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into an Individual Retirement Plan.

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So, back on the topic of cashing out

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your assets from your former employer's plan.

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In essence, cashing out means taking a total withdrawal from your account.

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The cash out consequences we're about to mention, may, or may not apply to you. Therefore, we again ask that you please refer to your Summary Plan Document before making any of those decisions.

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So, if you were to cash out, the withdrawal of your investments and money will be provided to you. Again, a cash out means a total liquidation of your account.

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Cashing out also could represent a taxable event, because you are receiving those assets and not rolling them over. Therefore, you may have to pay taxes on those assets and depending on if you're under the age of 59 and a 1/2, you may potentially also pay a penalty. The Rule of 55: no early withdrawal penalty,

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if you are over age 55 and withdrawal at your

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current job. That's an example. Something that one should consider when considering a cash out distributions from a former retirement plan does not follow the rule of 55.

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You have to be at least 59 and a 1/2 to receive those distributions or 10% penalty will be imposed, as I mentioned in the previous bullet point.

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But always remember, taking a distribution could push you to a higher tax bracket for the year

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and based on that money that's withdrawn so, therefore you'd pay more taxes potentially, in that same year if you were

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to cash out from your former employer's plan.

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So, we've talked about distributions we talked about contributions, we talked about distributions, we talked about rollovers and varying types of distributions and now, in Section 3, we want to discuss another type of distribution, which is the Required Minimum Distribution.

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What is a Required Minimum Distribution? Required Minimum Distribution is the minimum amount you must withdraw

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from your retirement accounts each year.

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You can find more information about Required Minimum Distributions, or "RMD's" as you can see that acronym there on the screen by going to: https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs

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https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs

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https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs

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https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs

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And you can find as much information as you would like about what Required Minimum Distributions are

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and when you would need to take them. And we'll discuss that a little more later in the presentation, as well.

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Why do you have to take a Required Minimum Distribution from your account?

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Well, the primary purpose of the RMD rules is to ensure that people do not continue to defer taxation.

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When you are contributing to your workplace retirement account,

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if you're contributing with traditional pre-tax dollars, you are delaying

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or deferring taxation on those assets; therefore, the government doesn't get their cut.

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So, the reason why RMDs were established is to end that delay so that they can then utilize some of those

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tax assets for other purposes.

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Now, let's discuss which accounts do you need to take Required Minimum Distributions from.

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Traditional 401(k) accounts. They do require, they do have RMD requirements.

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Roth 401(k) accounts do not have RMD requirements.

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Traditional IRA accounts do have RMD requirements. Roth IRAs do not. 403(b) Plans, 457 Plans, SEP & Simple IRA's and Profit Sharing Plans, all have Required Minimum Distribution requirements.

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This is not a complete list so if you would like the complete list of accounts, please visit www.irs.gov for a complete list of rules and regulations regarding Required Minimum Distributions.

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Now, we'll discuss when to take and what happens when you take a Required Minimum Distribution.

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You must take your first, Required Minimum Distribution for the year in which you reach age 73; however, you can delay taking the first Required Minimum Distribution until April 1st of the following year.

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What happens if a person does not take an RMD

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by the required deadline?

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If an account owner fails to withdraw the full amount of the RMD by the due date, the amount not withdrawn is subject to a 25% excise tax;

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possibly 10% if the RMD is corrected in a timely manner.

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You will be penalized if, in fact, you do miss

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your Required Minimum Distribution deadline, so please pay close attention. If you are still working at age 72, 73, understand that by 73 you are to begin taking Required Minimum Distributions.

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Now, we'll discuss how was the amount calculated for RMD and by whom.

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So, what happens if I'm still working at age 73?

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Do I still need to take a Required Minimum Distribution? You can delay, as I stated before, you can delay taking your Requirement Minimum Distribution until the year you retire, unless you are a 5% owner of the business that sponsors the plan. 5% owners - if you are 5% owner or more

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of a business sponsoring the plan, then you must begin receiving distributions by April 1st of the year after the calendar year in which you reach the age of 73.

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Now, who calculates the amount of the Required Minimum Distribution?

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Although the IRA custodian or retirement plan administrator may calculate the RMD, the account owner is ultimately responsible for taking the correct RMD amount.

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Let me repeat that, although the IRA custodian or retirement plan administrator may calculate the RMD, the account owner is ultimately responsible for taking the correct RMD amount.

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How is the amount of the RMD calculated?

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The Required Minimum Distribution is generally calculated for each account by dividing the prior year, December 31st, balance of that IRA, or retirement plan account by life expectancy factor that the IRS publishes. Please again refer to:

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www.irs.gov for more information regarding that life expectancy calculator and how to find out more about how the Required Minimum Distributions are calculated.

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Let's review some additional information regarding Required Minimum Distributions.

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May I withdraw more than the RMD requires? Yes.

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May I take more than one withdrawal in a year to meet my RMD? You may withdraw your annual Required Minimum Distribution in any number of distributions throughout the year, as long as you withdraw the total annual minimum amount

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by December 31st, or by April 1st, if it is your first RMD.

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How should I take my RMDs if I have multiple accounts?

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If you have more than one defined contribution plan, you must satisfy your RMDs separately for each plan and withdraw that amount from the plan.

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How are Required Minimum Distributions taxed?

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The account owner is taxed at his or her income rate on the amount of the withdrawn Required Minimum Distribution. However,

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to the extent the RMD is a return of basis or is a qualified distribution from a Roth account,

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it is tax free. Can RMD amounts be rolled over into another tax deferred account? No.

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Can a distribution in excess of the RMD for one year be applied to the of the future? No.

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In summary,

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here are a few things to consider before moving your money.

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Remember the goal of this account is for retirement.

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So, again, we're not advocates of taking withdrawals or distributions. However,

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sometimes life happens and you are required, or you may need the ability to take money from the retirement plan. So therefore, distributions are allowed, depending on certain criteria that you have to meet.

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You have to think about the tax deferred status, which allows you to put off taxes until you start receiving the money. And if, in fact, you're still

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a little confused about what some of your options are we ask that you please speak with a professional, a tax advisor, or a financial advisor before making any of those decisions regarding distributions

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or Required Minimum Distributions and/or rollovers to/

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from a former employer's account to either a new employer's account or an Individual Retirement Plan.

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So that concludes our, "Money in. Money out: It's your Retirement" presentation, and I thank you for attending.