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How to make Sense of the Alphabet Soup of Retirement Savings Plans

How to make Sense of the Alphabet Soup of Retirement Savings Plans 


401k, 403B, 457, SEP IRA Roth…….. It’s an alphabet soup of terminology. In this blog I will try to simplify this for you. 

What is a Qualified Retirement Plan?

Chances are, you have heard about qualified retirement plans and found yourself wondering exactly what these plans do. Fish and Associates understand that this terminology can be confusing. So let’s clarify what a qualified retirement plan is and what it guarantees.

A qualified retirement plan is a plan created by a company in which the employee’s contributions are usually not taxed until money is withdrawn from the plan. There are two types of qualified retirement plans. A “defined benefit” plans give employees pre-determined payouts based on earnings, service, and age. If you work for a state, local or federal government, you likely have a defined benefit plan. Defined contribution plans allow the company to set aside a certain percentage of money each year for employees. If you work for a corporation, large or small you likely have a 401K, which is a “defined contribution” plan. You put your own money into a 401k, and you employer may match that contribution. For example your company may match dollar for dollar up to 5% of your salary

Qualified retirement plans typically include certain types of investments, such as mutual funds, real estate, and other securities. They typically specify when an employee reaches an age at which they qualify for retirement benefits. Under certain circumstances, employees can take distributions before reaching the general qualification status or can borrow from the plan. However, there are often strict guidelines in place for borrowing. Employees who borrow from qualified plans might be subject to time-specific repayment plans or will accrue interest on the loan. An employee who borrows from their retirement plan might have to repay the remaining loan balance upon leaving the job or being involuntarily terminated.

Qualification factors might vary based on where you live. For example, under the Tennessee Consolidated Retirement System, service requirement qualifications are that an employee must be 60 years of age or older or worked for 30 years. Early retirement is possible at age 55, and 25-year service retirement is possible for teachers and state employees.

Life circumstances change, and retirement plan jargon can be confusing and frustrating. If you are unsure about the qualification factors outlined in your retirement plan or are considering whether to borrow from your plan, do not hesitate to contact Fish and Associates. A friendly associate is on hand to assist those with your retirement planning questions and concerns.





The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. Comments that may include past performance are not intended to be forward looking and should not be viewed as an indication of future results.

Questions About RMDs? Here’s What You Need To Know.

The rules around Required Minimum Distributions can be confusing and the penalties for failing to take the correct distribution can be severe. For that reason, we’ve developed a brief primer on RMDs to help you understand your obligations and show you how to use your RMD to pursue your financial goals.

What Are Required Minimum Distributions?

RMDs are minimum amounts that retirement account owners must take out each year, usually starting the year they turn 70½.

[i] RMDs must generally be taken from any retirement account eligible for tax-deferred contributions such as:[ii]

  • Traditional IRAs
  • SEP IRAs
  • Beneficiary IRAs
  • 401(k), 403(b), and 457 plans
  • Profit-sharing plans
  • Roth 401(k)

You do not have to take RMDs from a Roth IRA. There are different rules regarding the age at which you must begin RMDs for some retirement plan accounts, and it’s a good idea to talk to a qualified tax expert to understand which rules apply to your situation.

How Is Your RMD Calculated?

Your minimum distribution is calculated based on the end-of-year balance of your retirement account and a life expectancy factor published by the IRS.[iii] As you age, your life expectancy decreases and your RMD increases. Though the RMD is calculated separately for each IRA, you can take the total amount from a single IRA if you prefer. RMDs from most employer-sponsored retirement accounts and beneficiary accounts must be calculated and taken separately for each account. [iv]

You can always take out more than your RMD each year, but you won’t be allowed to apply any excess to future years. The penalty for failing to take out enough to satisfy your RMD by the deadline is a 50% excise tax on the undistributed portion.

How Will Your RMD Affect Your Tax Situation?

RMDs are generally treated as ordinary income and will be taxed at your income tax rate. If you turned 70½ last year you can delay your first RMD until April 1st of the following year though you’ll still need to take your RMD for age 71 by December 31st.[v] Taking two RMDs in a single year can affect your tax picture, so it’s a good idea to speak to your advisor about tax-efficient strategies.

From a tax perspective, it doesn’t matter whether you take your RMD earlier or later in the year. However, if you’re interested in making a tax-free transfer of your RMD to charity, you may want to consider waiting until December. Though the Qualified Charitable Distribution provision expired in 2013, Congress temporarily renewed it in December 2014, giving taxpayers a very short window to make a charitable donation, and may do it again in the future.[vi]

What Can You Do With Your RMD?

Once you’ve taken your RMD from your retirement account and paid the taxes on it, you can treat it as you would any other source of income. If you don’t need the money to cover your living expenses, you can:

  • Reinvest it in a taxable account for future needs.
  • Contribute it to a college savings account.
  • Gift it to your loved ones.

Taking RMDs can be complex and it’s a good idea to consult a financial professional to develop strategies that minimize your taxes and support your retirement goals. If you have questions about RMD strategies, please call my office at 901-767-0668.

Kind Regards,

Kathy Fish, CFP®,President
Fish and Associates


Footnotes, disclosures, and sources:

These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative, Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

We have not independently verified the information available through the following links. The links are provided to you as a matter of interest. We make no claim as to their accuracy or reliability.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

[i] http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-Required-Minimum-Distributions-(RMDs)
[ii] http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Required-Minimum-Distributions
[iii] http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-Required-Minimum-Distributions-%28RMDs%29
[iv] http://www.irs.gov/Retirement-Plans/RMD-Comparison-Chart-(IRAs-vs.-Defined-Contribution-Plans)
[v] http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Required-Minimum-Distributions
[vi] http://www.irs.gov/uac/New-Law-Renews-IRA-Transfers-to-Charity-for-2014-Owners-Must-Act-by-Dec-31

Note: Due to industry regulations on communication, we are unable to allow for public comments on this blog. Please feel free to email me your questions and/or comments to kathy@fishandassociates.com. Thank you. Securities and Investment Advisory Services offered through NFP Securities, Inc., Member FINRA/SIPC. NFP Securities, Inc. is not affiliated with Fish & Associates.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Kestra IS and Kestra AS are not affiliated with Fish and Associates. Kestra IS and Kestra AS do not provide tax or legal advice.

This site is published for residents of the United States only. Registered representatives of Kestra IS and Investment Advisor Representatives of Kestra AS may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed. Not all of the products and services referenced on this site are available in every state and through every representative or advisor listed. For additional information, please contact the Kestra IS compliance Department at 512-697-6000.

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