Carstens Financial Group
  • Home
  • About Us
    • Pro-Am
  • Services
    • Retirement Income Strategies
    • Tax-Efficient Solutions
    • Investment Planning
    • Long-Term Care
    • Estate Preservation
    • Securities
  • Resources
  • Blog
  • Contact

Blog

Required Minimum Distributions: Traditional IRA vs. 401(k)

2/13/2018

0 Comments

 
Picture
​Do you have a significant portion of your retirement assets in a 401(k) plan or traditional IRA? If so, you’re not alone. Many Americans use these tax-deferred vehicles to accumulate retirement assets.
 
Traditional IRAs and 401(k) plans provide tax benefits in several ways. First, your contributions may reduce your taxable income. Traditional IRA contributions may be tax-deductible, and 401(k) contributions are taken from pretax earnings. As long as the funds stay inside the account, you don’t pay taxes on your growth.
 
However, you can’t defer your taxes forever. Distributions from these accounts are usually taxable. The IRS requires you to take distributions from a traditional IRA or 401(k) by age 70½. The amount of these required minimum distributions (RMDs) is based on your account balance and your age. The withdrawal usually increases as you get older.
While RMDs are a common element for both 401(k) plans and traditional IRAs, there are subtle differences between the two accounts. Understanding those differences can help you better plan your income. Below are a few of the biggest RMD differences between traditional IRAs and 401(k) plans:

Calculations for Separate Accounts
It’s possible that you could have several IRAs and 401(k)s. It’s not unusual for people to have multiple 401(k) plans from former employers or to open different IRA accounts at various points in their lives. Your RMD calculation for multiple accounts differs based on whether the accounts are IRAs or 401(k)s.
 
If you have multiple IRAs, you can simply total your balance for all the accounts and then take the required amount from any account. As long as you withdraw the minimum, it doesn’t matter which account the funds come from. With multiple 401(k) plans, you must calculate and take a separate RMD from each account.

Working Past 70½
Perhaps you want to stay in your job past age 70½. What does that mean for your RMD calculation? It doesn’t impact your traditional IRA RMDs at all. You must take RMDs from your traditional IRA at age 70½ regardless of whether you are still working.

If you work past age 70½, however, you don’t have to take RMDs from that employer’s plan at that age. Your RMDs would start after you leave the employer. Keep in mind, though, that you would have to take RMDs at 70½ from any balances in former employer plans.

Roth IRA and Roth 401(k) Distributions
Roth IRAs are popular because they offer tax-free retirement income after age 59½. They also don’t have RMDs at age 70½, so you are never forced to take distributions from your Roth IRA.
 
It’s possible that you may have some funds in a Roth 401(k). These plans have grown in popularity in recent years. They are taxed much like a Roth IRA. You make contributions with after-tax dollars, defer taxes on growth while the funds are in the account and then take tax-free distributions after age 59½.
 
However, a key difference between Roth IRAs and Roth 401(k) plans is that you must take RMDs from a Roth 401(k). These distributions aren’t taxable, but they are required. If you fail to take them, you could face a penalty. If you don’t wish to take distributions from your Roth 401(k), you could consider rolling the balance into a Roth IRA.

Tax-Free Charitable Distributions
Want to give to charity and minimize your tax burden? Consider donating your traditional IRA RMDs to your favorite cause. The IRS allows you to transfer your RMDs from a traditional IRA directly to a charitable organization. If you do so, the distribution is tax-free. This option isn’t available for 401(k) balances. However, you could roll your 401(k) funds into an IRA and then complete the tax-free transfers.
 
Ready to plan your RMD strategy? Let’s talk about it. Contact us today at Carstens Financial Group. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.

 
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
17287 - 2018/1/17

0 Comments

Your comment will be posted after it is approved.


Leave a Reply.

    Kirt Carstens

    Carstens Financial Group focuses on providing comprehensive asset management, estate planning and life insurance solutions. Allow us to help you secure your financial future.

    Archives

    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    September 2019
    August 2019
    July 2019
    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016
    March 2016
    February 2016
    January 2016
    December 2015
    November 2015
    October 2015
    September 2015
    August 2015
    July 2015
    June 2015
    May 2015
    April 2015
    March 2015
    February 2015
    January 2015
    December 2014
    November 2014
    October 2014
    September 2014

    Categories

    All
    2020
    CARES Act
    COVID
    Economic Update
    Election
    Employer Plans
    Estate Planning
    Fed Chairman
    Financial Planning
    Fourth Quarter
    FRA
    Full Retirement Age
    Funding
    GDP
    Health Care
    Health Savings Account
    HSA
    Income
    Inflation
    Insurance
    Managing Medical Expenses
    Medicare
    Planning
    Portfolio
    Retirement
    Retirement Home
    Retirement Planning
    Retirement Strategy
    Risk
    Risk Tolerance
    Say Yes
    Social Security
    Stimulus
    Stock Market
    Supplemental Retirement Income
    Tax Planning
    The Market
    Working In Retirement
    Working Part Time
    Yes

    RSS Feed

Kirt Carstens, CLU, ChFC
Investment Advisor Representative
P: (712) 332-5960
F: (712) 332-5391

605 Hwy 71 S
Arnolds Park, IA 51331
Get Directions

Home     About Us     Services     Resources     Blog     Contact

This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation.

Securities and Advisory Services offered through CreativeOne Securities, LLC Member FINRA/SIPC and an Investment Advisor.  Carstens Financial Group and CreativeOne Securities, LLC are not affiliated.
​
This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional.  The statements and opinions expressed are those of the author and are subject to change at any time.  All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only.  It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. 

Check the background of an investment professional.  |  Privacy Policy
  • Home
  • About Us
    • Pro-Am
  • Services
    • Retirement Income Strategies
    • Tax-Efficient Solutions
    • Investment Planning
    • Long-Term Care
    • Estate Preservation
    • Securities
  • Resources
  • Blog
  • Contact