Required Minimum Distributions: What Every Advisor Needs to Know FOR FINANCIAL PROFESSIONAL USE ONLY / NOT FOR PUBLIC VIEWING OR DISTRIBUTION.

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1 Required Minimum Distributions: What Every Advisor Needs to Know 1

2 Required Minimum Distributions Upon reaching age 70½, clients must begin taking annual distributions from their IRA in accordance with the IRS rules Clients may always take out more than their required minimum distribution This document is not intended to be legal or fiduciary advice or a full representation of all responsibilities of advisors. Required Minimum Distributions do not apply to Roth IRA owners but do apply to their beneficiaries. 2

3 Required Minimum Distributions If clients have more than one IRA, they can satisfy their required minimum distribution from one or more of their IRAs Failure to satisfy a required minimum distribution may result in a 50% penalty on the shortfall 3

4 Making the First Distribution YEAR 1 YEAR 2 Jan 1 Dec 31 Apr 1 Dec 31 Year in which client reaches age 70 ½ 1 st RMD due 2 nd RMD 4

5 Uniform Life Expectancy Table Most IRA owners will use the same life expectancy table to calculate their minimum distribution Unless the sole beneficiary is the owner s spouse and more than ten years younger, everyone uses the Uniform Life Expectancy table 5

6 Uniform Life Expectancy Table Age of IRA Owner Distribution Period

7 Calculating A Required Minimum Distribution Account Balance, Prior 12/31 Life Expectancy Factor = Required minimum distribution in dollars for current year Note: The IRS requires IRA custodians to report to the IRS which accounts are subject to RMDs, but not the amount 7

8 Case Study: RMD Mary, age 74, has the following three IRAs: Beneficiary Age of Beneficiary Prior Year End Balance IRA 1 Spouse 72 $400,000 IRA 2 Two sons, 50% each 54 and 50 $100,000 IRA 3 Charity N/A $50,000 8

9 Case Study: RMD Mary may satisfy her required minimum distribution from any of her three IRAs Account Balance, Prior 12/31 Life Expectancy Factor = Required minimum distribution in dollars for current year $550, = $23,109 9

10 RMDs and Qualified Plans If a client is a participant in a qualified plan and still working, his first required minimum distribution is delayed until April 1st of the year following the year of retirement Must be less than a 5% owner Unlike IRAs, clients with multiple qualified plans must take a RMD from each plan 10

11 RMDs and 403(b)s A client s RMD may be delayed until age 75 for pre-1987 balances Post 1986 balances follow the IRA rules This feature is lost if the client rolled his 403(b) into an IRA 11

12 RMDs for IRA Beneficiaries 12

13 Naming IRA Beneficiaries Clients may name anyone they wish as their IRA beneficiary If a client lives in a community property state, he must first obtain spousal consent if he does not name his spouse as beneficiary By naming a beneficiary, IRAs avoids probate court Other possible designations include children, friends, trusts or charities 13

14 Spousal Beneficiaries Spousal beneficiaries have the option to roll over inherited IRAs into their own IRA and name new IRA beneficiaries By doing so, both estate and income taxes are deferred If the surviving spouse is not 59½ and needs the funds, he/she may take penalty free distributions from the deceased spouse s IRA 14

15 Non Spouse Beneficiaries Non-spouse beneficiaries cannot roll over an inherited IRA into their own IRA They must choose a distribution schedule: Lump sum Distributions over a five year period, if the IRA owner dies prior to reaching his RBD Distributions over the beneficiary s life expectancy (The Stretch IRA) 15

16 The Stretch IRA Balance continues to grow tax-deferred All distributions are subject to income taxes but exempt from the 10% penalty Beneficiaries may accelerate distributions at any time 16

17 Case Study: The Stretch IRA Age of IRA owner: 80 Beneficiary designation: Son 50%, Daughter 50% Age of beneficiaries: 54 and 44 IRA balance: $500,000 Interest rate: 8% 17

18 Case Study: Son s Stretch IRA Age Life Expectancy Earnings Distribution Account Value $20,000 $8,445 $261, $20,924 $9,145 $273, $21,866 $9,903 $285, $29,495 $18,810 $379, $32,944 $42,895 $401, $24,592 $66,828 $265,177 18

19 Case Study: Daughter s Stretch IRA Age Life Expectancy Earnings Distribution Account Value $20,000 $6,443 $263, $21,084 $6,972 $277, $22,213 $7,545 $292, $32,775 $14,225 $428, $47,703 $31,717 $612, $51,104 $72,591 $617,317 19

20 Stretch IRA Planning The decedent s IRA should be separated by December 31st of the year following death in order for each beneficiary to use his own life expectancy Charity beneficiaries must take their share by September 30th of the year following death If a trust is beneficiary, distributions are generally based on the age of the oldest trust beneficiary 20

21 Stretch IRAs and Qualified Plans Non-spouse beneficiaries that inherit a qualified plan balance are permitted to rollover the balance into a beneficiary IRA to take advantage of the Stretch IRA 21

22 Sales Ideas Make November RMD month as part of your client service model Conduct a beneficiary review for your top clients Host a client appreciation event or CPA CE program 22

23 Questions? Please consider the charges, risk, expenses and investment objectives carefully before investing. For a prospectus, or, if available, a summary prospectus containing this and other information, please call Janus at JANUS (52687) or download the file from Janus.com/reports. Read it carefully before you invest or send money. Tax information contained herein is not intended or written to be used and cannot be used by taxpayers for the purposes of avoiding penalties that may be imposed on taxpayers. Such tax information and any estate planning information is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. The information included in this material should not be considered advice. An IRA should be considered a long-term investment. IRAs generally have expenses and account fees, which may impact the value of the account. Non-qualified withdrawals may be subject to taxes and penalties. Maximum contributions are subject to eligibility requirements. Depending on your eligibility, you may not be able to contribute the maximum amount. A retirement account should be considered a long-term investment. Retirement accounts generally have expenses and account fees, which may impact the value of the account. Non-qualified withdrawals may be subject to taxes and penalties. For more detailed information about taxes, consult a tax attorney or accountant for advice. For more detailed information about taxes, consult IRS Publication 590 or your tax advisor regarding your personal circumstance. Janus Distributors LLC 151 Detroit Street, Denver, CO C