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{"id":1658,"date":"2015-03-31T08:15:19","date_gmt":"2015-03-31T14:15:19","guid":{"rendered":"http:\/\/admin.patheos.com\/blogs\/janetheactuary\/?p=1658"},"modified":"2015-03-31T08:15:19","modified_gmt":"2015-03-31T14:15:19","slug":"required-minimum-distributions-a-small-anecdote","status":"publish","type":"post","link":"https:\/\/www.patheos.com\/blogs\/janetheactuary\/2015\/03\/required-minimum-distributions-a-small-anecdote.html","title":{"rendered":"Required Minimum Distributions: a small anecdote"},"content":{"rendered":"\n<\/head>

Do retirees really, consistently, have the level of financial understanding necessary to manage, not a monthly pension check, but an IRA as their source of retirement income?<\/p>\n

Many do, of course. \u00a0But, based on anecdotal evidence, I suspect that there are many retirees whose understanding is hazy, at best, whether they\u2019re lower-income workers who end up with an IRA due to a 401(k) rollover at work, or individuals whose spouse has always handled such matters and is no longer able to. \u00a0Not to mention, of course, those retirees who have had significant cognitive decline without others being aware, or being able to step in.<\/p>\n

What can go wrong?<\/p>\n

I learned this weekend that the penalty for not making the Required Minimum Distribution<\/a> (an annual amount that must be withdrawn from the IRA, determined from an IRS table based on life expectancy) is a tax of 50% of the amount that should have been withdrawn. \u00a0This is a lot of money \u2014 all the more so because, I imagine, when\u00a0an RMD had been missed, it\u2019s unlikely to be a matter of being a \u201ctax cheat\u201d and far more likely to be a consequence of the myriad ways that retirees have difficulty with their finances, everything from illness or hospitalization, to disorganized finances, to simply forgetting as a consequence of general memory loss. \u00a0Now, there is a means of requesting a waiver of the penalty, though we don\u2019t know how generous or stingy the IRS is in approving these waivers. \u00a0But still: \u00a050% is a big chunk of change, as Dad would say.<\/p>\n

Besides which: \u00a0for someone who\u2019s not particularly well-versed in financial matters (again, sample size of 1), the RMD is ripe for misunderstanding. \u00a0The RMD is not an annuity; just because the IRS provides this number as a minimum amount to be withdrawn does not have any bearing on what the \u201cright\u201d amount is to withdraw each year, nor does it provide any protection against outliving your assets. \u00a0And the sole significance of the RMD is that this is the amount which must be moved to a different account each year, and taxes paid on it \u2014 by no means is it required that one actually spend<\/em> this money during the year.<\/p>\n

Are these mistakes so foolish as to be ridiculous to believe that anyone would make them? \u00a0Not when you consider the extent to which older adults are affected by cognitive decline. \u00a0Yes, this is one piece in an overall puzzle, along with overall management of finances, bill-paying, even paying the property taxes before losing the house. \u00a0But this is also more complex than the other pieces, too.<\/p>\n<\/body><\/html>\n","protected":false},"excerpt":{"rendered":"