(PUB) Investing 2016

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17 Morningstar FundInvestor November 2016
70-1/2 , but there’s nothing saying that you have
to spend it. Thus, if your planned withdrawal rate is 3%
but your RMD is over 5% of your total portfolio, you
need to reinvest that money. As noted above, you can
reinvest the proceeds in a Roth IRA , provided you
or your spouse have earned income and the contribu-
tion doesn’t exceed $6,500 . Or you can reinvest
in a taxable account. Employing tax-efficient invest-
ments, you can actually do a pretty good job of
reducing the drag of taxes on the taxable account on
an ongoing basis, similar to what you had in your tax-
deferred account.
I’ve been hearing that I can delay RMDs with
a portion of my IRA if I buy a qualified longevity
annuity contract. How does this work?
A qualified longevity annuity contract is a type of
deferred income annuity. In contrast with immediate
annuities, which start paying income straightaway,
payouts from deferred income annuities commence at
some later date, often at age 85. In 2014, the U.S.
Treasury approved rules that made these annuities a
viable option within 401(k)s and IRAs by waiving
RMD requirements, which had previously been an im-
pediment to their usefulness. For the annuity to
dodge RMDs, the contract value cannot exceed
$125,000 , or 25% of the account balance, whichever
is less. In addition to helping a portion of the port-
folio avoid RMDs, the products also have merit from a
planning standpoint, in that they provide a base-
line of income later in life, when the portfolio may be
at a low ebb.
Do I need to pull RMDs from all of my IRA holdings?
No. To calculate your RMDs, look back to the balance
for each of your accounts as of the previous year-
end. To calculate the RMD that you’ll take out by Dec.
31, 2016, for example, you’ll find your balances
as of Dec. 31, 2015 . If you own three separate tradi-
tional IRAs—one with an RMD of $4,000 at the
end of 2015, one with a $1,000 RMD, and one with a
$3,500 RMD—you’d need to take $8,500 in total,
but it wouldn’t matter which IRA you took it from. Be-
cause you can pick and choose where you pull them
from, RMDs can be an effective way to help improve
your portfolio’s positioning.
Note that you can’t combine RMDs from different
account types—for example, if you have IRA assets as
well as a 401 (k) that you’re pulling from, you’d
need to take separate RMDs. Nor can spouses combine
RMDs, pulling from one spouse’s account while
leaving the other RMD-subject spouse’s account alone;
because the accounts are owned individually, the
RMDs apply on an individual basis, too.
I’ve heard that I may be able to delay RMDs if I’m
still working after age 70-1/2. True?
Yes and no. If you have IRA assets, you still have to
take RMDs from those accounts post-age 70-1/2,
even if you’re working. But if you’re still working and
have assets in a company retirement plan, you
can delay withdrawals from those accounts until April
1 of the year after you retire. The exception to this
rule is for employees who own more than 5% of the
company where they’re working and participat-
ing in the plan; they must begin taking their RMDs at
age 70-1/2. K
Contact Christine Benz at