Required minimum distributions (RMDs), are mandatory annual withdrawals required from individual retirement accounts (IRAs) or employer-sponsored retirement plans in order to be in keeping with United States tax laws.
An RMD amount is calculated by dividing one’s tax-deferred retirement account balance as of December 31 of the prior year by one’s life expectancy factor. Let’s deep dive into what you need to know about how taking required minimum distributions (or RMDs) from your IRA works.
In this video, Joe DiDomenico, Founder of WealthFlex, explains why minimum distributions are required, the penalty for missing an RMD, and the rules surrounding inherited RMDs.
The spirit of the IRA opportunity in the United States is to encourage taxpayers to save for retirement. It’s widely recognized that Social Security by itself won’t be able to sustain an adequate lifestyle for most people through retirement. Tax advantages were created for people who put money away for their future. The idea was not to allow people to pay less taxes in general, but only to pay less taxes if their activity and behavior was consistent with the goal to save for retirement. Please note that Roth IRAs are not included in this RMD discussion.
The entire point of having a retirement account is that the money should eventually leave the tax-advantaged account and be spent during retirement. The story, according to the United States treasury, goes like this: You develop as a child to become a productive member of our economy by earning, spending, and paying taxes. You save along the way so when you can’t actively earn anymore, you can still spend, then you die a quick inexpensive death, or a slow expensive one if you have enough money or private insurance.
With this in mind, you can see why the treasury imposes a required minimum distribution amount of your retirement account value each year over the age of 72. The amount is based on statistical life-expectancy numbers. If you fail to meet this required amount of distribution, the penalty is 50% of the deficit amount.
Say for example that you are in the 37% tax bracket. After you pay your 50% penalty on the missed amount and the 37% income tax on that amount, you are left with 13% of your money. In a scenario like this, you would have been better off having never put the money in your IRA to begin with.
Penalty for missed RMD
(50% of RMD amount) + (37% for Income Tax) → Only 13% left
The amount of your RMD is a calculation considering all of your non-Roth IRAs and retirement accounts. So in turn, you are able to take the RMD evenly amongst your accounts, or all of it from a single account. That part is up to you. Also, you are allowed to take in-kind distributions to meet your RMD if your custodian allows it. This means distributing assets that have a combined value of at least the RMD amount.
If you miss your RMD, you should report this on your taxes and either pay the excise tax or request a waiver. If you request a waiver, you don’t need to pay the excise tax at the time, but rather wait for a response from the IRS. Take a distribution of the amount of the missed RMD as soon as you can, and you will be informed whether it will count towards your current RMD or your past RMD. Definitely talk to your tax advisor on this issue if this happens to you.
Another RMD issue to consider is the inheritance of an IRA. If you are inheriting an IRA from your spouse or are inheriting an IRA while disabled or chronically ill, you can treat the inherited IRA as your own. Other IRAs not inherited from spouses or if you are not disabled or chronically ill, have an RMD that is factored over 10 years.
In the interest of avoiding RMD-related complications, it is recommended that IRA holders take the required amount of money out when they are supposed to and enjoy it.
Please note, Yieldstreet cannot provide tax advice, please consult a tax professional for advice specific to your situation. Learn more about how you can take retirement planning to the next level with a Yieldstreet IRA. Contact us at [email protected] with any questions.
This communication and the information contained in this article are provided for general informational purposes only and should neither be construed nor intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice. Any link to a third-party website (or article contained therein) is not an endorsement, authorization or representation of our affiliation with that third party (or article). We do not exercise control over third-party websites, and we are not responsible or liable for the accuracy, legality, appropriateness or any other aspect of such website (or article contained therein).
1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.
2 Represents a net estimated, unrealized annualized internal rate of return (IRR) of your portfolio and is based by reference to the effective distribution dates and amounts to and from the investments, as well as any outstanding principal and accrued and unpaid interest as of the current date, after deduction of management fees and all other expenses charged to the investments.[read more]
3 "Annual interest" or "Annualized Return" represents an annual target rate of interest or annualized target return and "term" represents the estimated term of the investment. Such target interest or target returns and estimated term are projections of the interest or returns and or term and may ultimately not be achieved. Actual interest or returns and term may be materially different from such projections. This targeted interest or returns and estimated term are based on the underlying investments held by the applicable.
4 Reflects the initial quarterly distribution declared by the board of directors on February 6, 2020, which will be payable to stockholders of record as of June 10, 2020, and the initial offering price of $10 per share.
5 The Fund will cease investing and seek to liquidate the Fund's remaining portfolio no later than 48 months after the Fund's initial closing. It may take up to twelve months thereafter to fully monetize any remaining illiquid investments in the Fund's portfolio.
6 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.
7 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including July 8th, 2021, after deduction of management fees and all other expenses charged to investments.
8 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Prism Fund before investing. The prospectus for the Yieldstreet Prism Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to www.yieldstreetprismfund.com. The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.
No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.
Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefor.
Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.
Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.
Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.
Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.
Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and willing and able to accept the high risks associated with private investments.
Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.
Banking services are provided by Evolve Bank & Trust, Member FDIC.
Investment advisory services are provided by YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission.
Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.