If you have more than one qualified retirement account, you can satisfy the RMD from one account or you can split it up. You may take the required distribution from each qualified account.
The amount that you are to take is based on your account’s value on December 31st of the prior year. So, your 2022 RMD percentage to take out will be based on your account’s balance as of December 31st, the prior year and your age. Each year the custodian where your money is held will report to the IRS your account balance, and you should receive a notice telling you what you need to take out.
Generally, you must begin taking your RMD by the next April 1st after turning 72. So, if you turned 72 in 2021, you must begin taking your distribution by April 1, 2022.
A question I often get is, I don’t need the money. What do I do with it now? After you take your distribution and you pay taxes on the money, you may reinvest it in any type of investment. This type of money that has already been taxed is commonly referred to as a non-qualified money. Meaning the principle has been taxed and only the gains are taxable. This is sometimes called a “taxable” account also.
If you invest non-qualified money in a brokerage account to buy equities, you’ll get a statement each year from the brokerage company telling you to pay taxes on the gains you’ve made.
Not that CDs are attractive right now, but if you placed your money in a CD the same would apply. The only type of investment that allows you to defer paying taxes on non-qualified money is an annuity. The gains on an annuity are only taxed when you take money out and are not taxed yearly like other accounts.
There is one other type of account that the gains are completely tax-free if done properly. More on that below.
What happens to your qualified accounts when you pass away?
When someone other than your spouse inherits a qualified money, they will have to take all the money out and pay taxes on it within ten years of your death. Your beneficiary can do the following:
- Take a little money out each year.
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They can take it all out at the beginning or end.
- The rule is that the money has to be in a taxable account within ten years of the original person’s death.