You could wait and maybe the markets will recover or don't do it all at once.
Ric Edelman: Welcome back to The Truth About Your Future. Let's take a telephone call heading off to Novi, Michigan. John is with us on the air. How are you doing, John?
ASK RIC - John from Novi MI: I'm doing very well, thank you.
Ric Edelman: And how can I help you?
ASK RIC - John from Novi MI: Well, I'm a long time listener, and I wanted to ask you a question about required minimum distributions.
Ric Edelman: Okay.
ASK RIC - John from Novi MI: This year, both my wife and I have to make our very first RMDs. While the market performed very well for us over the last few years, our accounts are now down over 10%. Therefore, we'll be taking the distribution and paying taxes on highly inflated balances. Will the IRS consider declaring a RMD holiday for seniors? What are the best ways to make RMDs during a falling market?
Ric Edelman: There's no shot of the IRS coming to your rescue, but let me elaborate and help folks understand what you're talking about. If you are over the age of 72, you have to start withdrawing money or you must, on an annual basis, withdraw from your account. The IRS has a table where they determine the amount you must withdraw, and if you don't withdraw the proper amount of money on an annual basis, you will not only owe the tax, you will owe a 50% penalty. Five zero. That's in addition to the tax, which could be 40% for a lot of people. So you've got to get it right. Let's say you must withdraw 3%. Okay. So you go to your IRA account, you look at the value and you withdraw 3% so that you can pay your taxes. Wrong. It's not 3% of the value of the account when you withdraw from the account. It's 3% of the account value as of the last 12/31. In other words, you've got to go back to December 31st of 2021. What was the value of your IRA then? That's the dollar amount that you determine as the basis for your percentage withdrawal. But look at the value of your account today. The stock market has fallen dramatically. In other words, you have to withdraw money based on a value that was higher back in December than it is today.
Ric Edelman: So you've got to withdraw money and pay taxes on money that no longer exists. So what do you do about this? Well, there are a couple of strategies. Number one, you could wait. You don't have to do your RMD right now. It's required that you do it by the end of the calendar year. And if you're doing your first RMD, meaning you're just now reaching the first year that you have to do this, you could wait until April of next year so you don't have to do it right away. In other words, if you wait, maybe the markets will recover. The prices will go back up, back to where they were on 12/31. Of course, that's a bit of a gamble and a speculation. You could be making the situation even worse if the markets continue to decline. So you've got to decide. You could strike a little bit of a 'Solomon's baby' approach and do the RMD over the course of the year. Don't do it all at once right now. Don't do it all at once. Spread it out over the course of the year. This issue hasn't come up in over a decade because this is the first time in about 12 years that we have had a current value that's lower than the 12/31 value. And so you're in a pickle that we haven't faced in quite a long time.
ASK RIC - John from Novi MI: Okay. Well, thank you very much. Continue to provide the financial information that we can't get anywhere else. I just love your show and we plan our day around listening to you each weekend.
Ric Edelman: Well, John, I appreciate that very much. That was John from Novi, Michigan, here on The Truth About Your Future. And if you would like to do what John did, just contact me at AskRic@TheTruthAYF.com.
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