6 ways to manage your retirement account distributions

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Withdraw now or wait till later? How much should you take? How should you handle required minimum distributions (RMDs)? Consider these helpful insights.
All the money you've been putting away toward retirement — are you aware that you can't necessarily keep it all in your retirement accounts as long as you want? You're obligated to begin withdrawals from your traditional IRAs and other qualified retirement plan accounts once you turn 72.Footnote 1 Calculating these required minimum distributions (RMDs) can be tricky, especially if you have several retirement accounts. And you may be subject to a 50% additional federal tax on the amount of missed or insufficient RMDs. But by taking the appropriate distributions at the right time, you'll potentially avoid problems while helping to make the most of your retirement assets. Of course, every financial situation is unique, so consult with a tax and/or legal advisor to get help before making any decisions regarding distributions, as distributions may impact your taxes. Here are six tips to ease the task.
One of the biggest mistakes people make with RMDs is thinking they know how much they need to withdraw.
— John Liston,
Director and Division Manager,
Merrill Advisory Center™

Tip 1: Use the calendar to your advantage

You generally can start taking withdrawals from an IRA or other qualified retirement plan accounts as soon as you turn 59½ without incurring a 10% additional federal tax for early withdrawals. But waiting longer could mean a larger nest egg to draw upon. Once you begin taking RMDs, you are required to take an RMD every year. If you are still working at age 72 and you do not own more than 5% of the company you work for, you may not have to take RMDs from your qualified retirement plan account until Apr. 1 after the year you retire.
"You should check with your tax advisor, as there are cases where delaying the first RMD may make sense," says Debra Greenberg, director, Retirement & Personal Wealth Solutions, Bank of America. "For example, if you're still working and you plan to retire, you may expect to be in a lower tax bracket the following year."

Tip 2: Stick to the minimum if possible

"The biggest mistake people make with RMDs is thinking they know how much to withdraw," says John Liston, a director and division manager in the Merrill Advisory Center™. Generally, your age and your account values determine what you are required to withdraw. While you can take out more than required, that's generally not a good idea unless you need the extra income. For one thing, you'll pay income tax on any withdrawals, from a traditional IRA or on pre-tax assets withdrawn from an employer-sponsored retirement plan account, and you'll sacrifice potential future tax-deferred growth of those funds. "If you need to supplement your distributions, consider taking that money from an after-tax brokerage account or a savings account," says Liston.

Tip 3: Consider all your retirement accounts

If you have multiple traditional IRAs and qualified retirement plan accounts with former employers, you must calculate your required distribution for each account. You don't have to withdraw from every traditional IRA, however, as long as the money you take from one or more IRAs meets the overall required distribution. But you do need to withdraw the RMD from each qualified retirement plan account.
Keeping track of everything can be cumbersome and confusing. To simplify matters, many people elect to roll over multiple qualified retirement plan accounts into a single IRA or to consolidate multiple IRAs into one account.
You have choices about what to do with your employer-sponsored retirement plan accounts. Depending on your financial circumstances, needs and goals, you may choose to roll over to a traditional IRA or convert to a Roth IRA, roll over an employer-sponsored retirement plan account from your old job to your new employer's employer-sponsored retirement plan, take a distribution, or leave the account where it is. Each choice may offer different investment options and services, fees and expenses, withdrawal options, RMDs, tax treatment treatment (particularly with respect to employer stock), and different types of protection from creditors and legal judgments. These are complex choices and should be considered with care. For more information on rolling over your IRA, 401(k), 403(b) or SEP IRA, visit our rollover page or call a Merrill rollover specialist at 888.637.3343.

Tip 4: Sometimes you should keep your qualified retirement plan account intact

If you are still working for a company at 72 and own 5% or less of the company, the tax laws do not impose RMDs from that company's qualified retirement plan account until the year after you retire (though you must still take distributions from your IRAs or any former employer's qualified retirement plan accounts). In that case, you may want to wait until you retire from the company before rolling over your qualified retirement plan funds to an IRA.

Tip 5: Try our RMD Service

At Merrill, we offer a service that helps you calculate distributions on your Merrill retirement accounts. This helps you take a distribution on time, to avoid additional federal taxes for not taking the minimum necessary. It also helps keep your estimated cash needs on track. Call or locate a Merrill Financial Solutions Advisor near you to discuss how to manage RMDs with this service. You also can discuss how to use an enhancement to the RMD Service, the Automatic Liquidation Service, which lets clients specify which mutual funds in their retirement accounts can be sold to fund their RMDs. "Because of the rule of aggregating IRAs for distribution purposes, it is important for clients with more than one IRA to have a detailed discussion about which IRA or IRAs will be liquidated," Liston explains.

Tip 6: Don't guess — calculate each year

Don't assume your RMD withdrawal amount is set. It will vary from year to year, depending on the value of your retirement accounts and your age, Liston says. "Talk to a Merrill Financial Solutions Advisor and tax professional to help you determine your cash flow needs and whether your RMD is enough to meet them."
Next steps

Footnote 1 The required beginning date for RMDs is age 72 for people born after June 30, 1949. You may defer your first RMD until Apr. 1 in the year after you turn age 72, but then you'd be required to take two distributions in that year. Failure to take all or part of an RMD results in a 50% additional tax applicable to the amount of the RMD not withdrawn. Consult your tax advisor for more information on your personal circumstances.

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This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation, offer or solicitation for the purchase or sale of any security, financial instrument or strategy. Before acting on any information in this material, you should consider whether it is in your best interest based on your particular circumstances and, if necessary, seek professional advice. Any opinions expressed herein are given in good faith, are subject to change without notice, and are correct only as of the stated date of their issue.

Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.
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