Taking Your Required Minimum Distributions

Transcription

1 RETIREMENT Taking Your Required Minimum Distributions A Guide for Retirement Account Owners and Beneficiaries

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3 Taking Distributions During Your Lifetime Most people are required to start withdrawing from IRAs and other tax-deferred retirement accounts by age 70½. The withdrawal called a Required Minimum Distribution (RMD) must meet or exceed a specific dollar amount each year as determined by an IRS formula. (Note: RMD requirements do not apply to Roth IRA owners, but do apply to Roth IRA beneficiaries maintaining Inherited Roth IRAs.) Tax laws generally require that you take your RMD each year beginning with the year you turn 70½ (or, for plans other than IRAs, the year you retire 1, if later). While distributions may be taken anytime during the distribution calendar year, the IRS allows you until April 1 of the year following the year you turn 70½ (or the year you retire, if applicable) to take your first year s RMD. This date is referred to as your Required Beginning Date. If you choose to delay receiving your first year s RMD until the next calendar year, you must take two years worth of RMDs in that same year your first year s RMD by April 1 and your second year s RMD by December 31. For all subsequent years, you must take your RMD by December 31 of each year. It can be costly if you don t meet IRS requirements for taking RMDs. You could be subject to a 50% federal tax penalty on amounts that you should have, but did not, receive. 1 A delayed required beginning date does not apply to business owners who own 5% or more of the business sponsoring the plan. Consult a qualified tax advisor for additional information. RMD Tip #1 If you are a participant under a 403(b) plan or an employer sponsored plan (and you are not a business owner who owns 5% or more of the business sponsoring the plan), your first distribution year for which you must take an RMD is the later of the year in which you reach age 70½ or retire.

4 2 How Your Required Minimum Distribution Is Calculated Simply stated, your RMD amount is calculated by dividing your December 31 account value by a life expectancy factor. For most account owners the factor is taken from the Uniform Lifetime Table, (IRS Table III), unless an exception applies. (See RMD Tip #2 for the exception.) For example: The December 31, 2013 value of your retirement account is $100,000. You attain age 70 in 2014 (your 70½ year), so the life expectancy factor according to the Uniform Lifetime Table is As a result, the minimum amount you must withdraw for your 2014 RMD is $3, ($100, = $3,649.64). Note: If you attained age 71 in 2014, your life expectancy factor according to the Uniform Lifetime Table is 26.5 years. For IRAs, your December 31 account value may have to be adjusted if you have any outstanding rollovers, transfers, or recharacterized conversions. Please contact your investment professional or Pioneer s Retirement Plans Account Information line for additional information. RMD Tip #2 If your spouse is more than 10 years younger than you and you name him or her as your sole beneficiary, use the Joint Life and Last Survivor Expectancy Table (Table II) to calculate your RMD. The Joint Life and Survivor Expectancy Table can be found in IRS Publication 590, or call Pioneer for further assistance.

5 3 The Calculation Formula to Determine Your RMD December 31 balance 1 Your factor from the Uniform Lifetime Table = Your RMD Uniform Lifetime Table (IRS Table III) Age Factor Age Factor Check your year-end retirement statement for your December 31 balance. If you hold multiple retirement accounts, see Questions and Answers on pages RMD Tip #3 A non-spouse beneficiary may directly roll inherited assets from a qualified plan, 403(b) arrangements or governmental 457(b) plan to an Inherited IRA. Distributions are then required to be taken from the IRA, when applicable. Also, a non-spouse beneficiary may transfer from one Inherited IRA to another Inherited IRA. Contact your financial advisor or Pioneer for more information.

6 4 Required Minimum Distribution Rules for Your Beneficiaries Beneficiaries who inherit your retirement plan account must take Required Minimum Distributions. The payout options that are available to your beneficiaries depend on two factors: 1. Whether you die before, on or after your Required Beginning Date Death Before Your Required Beginning Date Beneficiary Beneficiary Options Spouse Rollover (or transfer, if applicable) to IRA in surviving spouse s name. Take payouts from inherited IRA based on surviving spouse beneficiary s own life expectancy. 1 Deplete account in 5 years. Children, grandchildren or other individuals Take payouts based on beneficiary s life expectancy. 4 Deplete account in 5 years. Note: Non-spouse beneficiaries may directly roll inherited assets from a qualified plans, 403(b) arrangements or governmental 457(b) plans to an inherited IRA. Distributions are then required to be take distributions from the Inherited IRA, when applicable. 5 Other Entity (Estate, Charity or Trust 6 ) Deplete account in 5 years. 1 If spouse is not the sole beneficiary, and the account is not split by the required deadline, payouts are generally based on the oldest beneficiary s life expectancy. 2 Amounts attributable to RMD (including any undistributed amounts from previous years) are not eligible to be rolled over. 3 If spouse is not the sole beneficiary, payouts must begin in year following the year of the account owner s death.

7 5 2. The IRA owner s relationship to the beneficiary (spouse, non-spouse, or other entity) The following tables illustrate the payout options your beneficiaries have, depending on whether death occurs before or after your Required Beginning Date. Deadlines Rollover at any time. 2 Payouts must begin in the later of the year following the account owner s death or in the year the deceased account owner would have reached 70½. 3 Distribute entire account by December 31 of the fifth anniversary year of the account owner s death. Payouts must begin by December 31 of the year following account owner s death. Distribute entire account by December 31 of the fifth anniversary year of the account owner s death. Distribute entire account by December 31 of the fifth anniversary year of the plan owner s death. 4 If there are multiple beneficiaries and the account is not split by the required deadline, payout for all beneficiaries will be based on the oldest beneficiary s life expectancy. 5 Conservatively complete the direct rollover by December 31 of the year following the death of the account owner to ensure the availability of the life expectancy payout option in the Inherited IRA. Otherwise, 5-year rule may apply to Inherited IRA. 6 Certain qualified trusts may have different beneficiary distribution options. Please contact your investment professional for additional information. Also, for qualified plans, 403(b) arrangements, and governmental 457(b) plans, a trust beneficiary may be eligible to directly rollover to an Inherited IRA.

8 6 Death On or After Your Required Beginning Date Beneficiary Spouse Beneficiary Options Rollover to IRA in surviving spouse s name (or transfer, if applicable). Take payouts from Inherited IRA based on life expectancy 1 Children, grandchildren or other individuals Take payouts from Inherited IRA based on life expectancy 1 Note: Nonspouse beneficiaries may directly roll inherited assets from qualified plans, 403(b) arrangements or governmental 457(b) plans to an inherited IRA. Distributions are then required to take distributions from the Inherited IRA, when applicable. 5 Other Entity (Estate, Charity or Trust 4 ) Take payouts from Inherited IRA based on the account owner s life expectancy. 1 1 The beneficiary s life expectancy payments are based on the single life expectancy of the beneficiary, another beneficiary or the deceased account owner. Please contact your investment professional or Pioneer s Retirement Plans Account Information line for additional information. 2 Amounts attributable to RMD (including any undistributed amounts from previous years) are not eligible to be rolled over. 3 The RMD for the year of death must be taken by the beneficiary if not fulfilled by the account owner in the year of death.

9 7 Deadlines Rollover at any time. 2 Payouts must begin in the year following the year of the account owner s death. 3 Payouts must begin in the the year following the year of the account owner s death. 3 Payouts begin in the year following the year of the account owner s death. 3 4 Certain qualified trusts may have different beneficiary distribution options. Please contact your investment professional for additional information. Also, for qualified plans, 403(b) arrangements, and governmental 457(b) plans, a trust beneficiary may be eligible to directly rollover to an Inherited IRA. 5 Direct the rollover at any time. Amounts attributable to RMD (including any undistributed amounts from previous years) are not eligible to be rolled over. Beneficiaries will be subject to required distributions in the Inherited IRA, when applicable.

10 8 RMD Tip #4 Make sure you review your beneficiary designations on a regular basis. If your circumstances change you can update your beneficiary designation to reflect those changes. Talk to your investment professional or call Pioneer for more information. Your RMD and Your Choice of Beneficiary During your lifetime, you can name anyone as your beneficiary, including your spouse, your children or other individuals. You also can name an entity such as a charity, trust or your estate as your beneficiary. With the exception of a spouse who is more than 10 years younger (see RMD Tip #2 on page 3), your beneficiary designation has no impact on how quickly your retirement plan must be paid out during your lifetime. After your beneficiary inherits your account, however, whom you designated as beneficiary determines how quickly the assets must be paid out. By naming younger beneficiaries, such as children or grandchildren, you can potentially stretch the tax-deferral of your retirement assets over decades. This stretching is possible because the IRS rules generally allow beneficiaries to use their own individual life expectancies for calculating their payouts after they inherit your retirement plan. Keep in mind that your beneficiaries can always take more than the RMD, just as you can during your lifetime. If you are designating a beneficiary other than an individual, special requirements may apply. Please contact your investment professional or Pioneer s Retirement Plans Account Information line at to request more information.

11 RMD Tip #5 Your beneficiaries will want to be aware that December 31 of the year following the year of your death is an important date. Splitting the IRA into separate accounts by that date will minimize required distributions and stretch the payouts thereby maximizing the tax-deferral. 9 Multiple Beneficiaries Named: Establishing Separate Accounts for Each Beneficiary If you have named multiple beneficiaries on your retirement account, your beneficiaries should be aware that December 31 of the year following the year of your death is an important date. If your account is split into separate accounts by December 31 of the year following the year of your death, each beneficiary can take his or her RMD based on his or her own individual life expectancy. For example, if you named two beneficiaries on your account your son, age 49 and grandson, age 10 each could use his own life expectancy if the account is split by the deadline. For your grandson, this means potentially stretching his life expectancy payouts for nearly 73 years, versus taking them out over your son s life expectancy of only 35 years. If the beneficiaries do not split the account by this deadline, the life expectancy of your oldest beneficiary must be used as the factor in the payout calculation for all your beneficiaries (see RMD Tip #5 above). Also, your beneficiaries want to be aware that the presence of a charity, estate, certain trusts, or any other entity as one of your primary beneficiaries may limit the payout options available to your other beneficiaries if the beneficiaries do not split the account into separate accounts by the December 31 of the year following your death. Your beneficiaries will also want to be aware that the penalty for not taking out an RMD each year is 50% of the amount that is under-withdrawn. This is the same penalty that applies to you during your lifetime. Your beneficiaries will want to work with their investment professional and Pioneer to make sure they understand how to take their RMD each year.

12 10 Questions & Answers Q. Will Pioneer help me determine my Required Minimum Distribution (RMD)? A. Yes. Pioneer, together with your tax professional, can help you determine your RMD for the assets that are held in Pioneer retirement plans, including Pioneer IRAs and 403(b) accounts. Q. Will my RMD be reported to the IRS? A. Yes. Each year, Pioneer sends the IRS information regarding the amount of the annual distribution taken from your Pioneer retirement account(s). For IRAs, Pioneer also reports to the IRS that you are required to take a distribution. Q. How do I handle my RMD if I have multiple retirement accounts? A. The RMD is calculated separately for each IRA that you maintain. However, the required distribution may be taken from any one or more of your IRAs, regardless of where the assets are actually invested. The same rule applies to 403(b) custodial accounts. However, if you hold both types of accounts, distributions taken from your IRAs will not satisfy the annual distribution requirements from your 403(b) accounts and vice versa. RMDs from all other types of retirement plans must be calculated separately and the distributions taken from the respective plans. Q. Must I stop making contributions to my retirement plan(s) when I turn 70½? A. You can no longer make contributions to your traditional IRA for the years beginning with the year in which you turn 70½ years of age. If you participate in other types of retirement plans, such as 401(k) and profit sharing plans, SEP and SIMPLE IRAs, you may still be eligible to make contributions (pursuant to the plans eligibility requirements). Roth IRAs do not have a maximum age requirement. You may be able to contribute to a Roth IRA, provided that you have earned income (and it does not exceed certain limits). Refer to IRS Publication 590 or consult your qualified tax advisor for additional information.

13 11 Q. Can I roll over my RMD into a Roth IRA? A. No. Your annual RMD from your traditional IRA or any other retirement plan may not be rolled over or converted to a Roth IRA. However, after satisfying your RMD, you may convert the remaining portion of your traditional IRA assets to a Roth IRA. Converted assets would generally be subject to ordinary income taxes in the year of the conversion. Once converted, these assets would no longer be subject to the RMD rules for the remainder of your lifetime, and your assets could continue to grow on a tax-free basis. Beneficiaries of Roth IRAs maintained as an Inherited Roth IRA are subject to RMDs. We suggest that you contact your investment professional or qualified tax advisor before converting. Q. Will the amount of my RMD change if I change my beneficiary or if my beneficiary dies? A. Changing your beneficiary will generally not increase the amount of your RMD during your lifetime. If your primary beneficiary dies before you, and you have not already named a contingent or secondary beneficiary, make sure you update your beneficiary designation to ensure that your retirement account will be left according to your wishes. Q. Who will receive my retirement account if I do not name a beneficiary? A. Each retirement account has different default rules if you die without a named beneficiary. If you die without a named beneficiary, your Pioneer retirement plan automatically provides that your beneficiary will be your surviving spouse, if living; otherwise your retirement assets will go to your estate. Your estate as beneficiary may result in undesirable tax consequences for your heirs. Work with your investment professional and tax advisor to make sure that your retirement plan assets are considered in your overall estate plan. Q. Can my beneficiary disclaim some or all of my retirement account? A. Generally, a beneficiary may disclaim the right to be considered a beneficiary, provided the disclaimer occurs within nine months of the plan owner s death and satisfies certain other requirements. Check with your tax advisor for more information.

14 12 Q. When must my beneficiary begin to take payments? A. Generally, a beneficiary must begin receiving distributions no later than December 31 of the year following the plan owner s death. Q. Will my children or grandchildren be able to rollover to an Inherited IRA? A. Yes. Non-spouse beneficiaries of qualified plans, 403(b) arrangements and governmental 457(b) plans are generally eligible to rollover directly from the inherited plan to an Inherited IRA. Additional restrictions may apply. Contact the plan administrator. Q. Can my beneficiary also designate a beneficiary on the inherited IRA? A. Yes. Beneficiaries of Pioneer s inherited IRAs can name beneficiaries who can take the required distributions should the original beneficiary die before the account is completely paid out. Q. How do I obtain the IRS publications mentioned in this guide? A. You may either call the IRS toll-free at or visit their website at:

15 Please contact your investment professional or Pioneer s Retirement Plans Account Information line at to request more information. This brochure provides general information about RMDs and how Pioneer can help you comply with IRS requirements. It is not intended to provide you with specific tax or retirement planning advice. We suggest you contact your tax professional or a qualified tax advisor before making any decisions about how and when to begin taking your RMD. Investing in mutual funds involves significant risks; for complete information on the specific risks associated with each fund, please see the appropriate fund s prospectus. Before investing, consider the product s investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus or summary prospectus containing this information. Read it carefully.

16 Securities offered through Pioneer Funds Distributor, Inc. 60 State Street, Boston, Massachusetts Underwriter of Pioneer mutual funds, Member SIPC 2013 Pioneer Investments us.pioneerinvestments.com