Schwab Intelligent Portfolios October 27, 2017

    Tax-advantaged retirement accounts such as IRAs provide a powerful way to save and invest for retirement. But after you've worked hard to grow your investments over time, don't forget that you're eventually required to take withdrawals from these accounts. It's important to make sure that you withdraw the correct amount on schedule to avoid facing a stiff tax penalty.

    Once you reach age 70½, the IRS generally requires you to take a mandatory annual withdrawal called a required minimum distribution (RMD) from your retirement accounts. RMDs apply to Traditional, Rollover, SEP, and SIMPLE IRAs as well as Qualified Retirement Plans such as 401(k) plans. RMDs don't apply to Roth IRAs, unless they're inherited.

    Know when to take your RMD

    You must take your first RMD no later than April 1 of the year following the calendar year in which you turn age 70½. Subsequent RMDs must be taken by December 31 of each year. As with most things in life, it pays to plan ahead. That's because if you wait until April 1 of the year after you turn age 70½ to take your first RMD, you'll need to take two distributions in the same year: one for the year you turn age 70½ and one for the current year. For example, if you turn 70½ in December 2017, you must take your first required distribution before April 1, 2018—and then take another distribution before December 31, 2018. Also, you will need to be prepared for the tax implications of taking two distributions in one year.

    If you: You must:
    Turn age 70½ this year Take your first RMD by April 1 of next year.
    Turned age 70½ last year Ensure you take your first RMD by April 1 this year. And, take this year’s RMD before December 31.
    Turned age 70½ in a previous year Continue taking your RMD before December 31 each year.

    Calculating your RMD

    The amount of your annual RMD depends on several factors such as the fair market value of your retirement accounts at the end of the previous year, your age and your life expectancy. You need to calculate your RMD for each account, but depending on the types of accounts you have, you might be able to take your total RMD from a single retirement account. To find out the exact minimum that you're required to withdraw, talk with your financial advisor or tax professional. You can also use Schwab's RMD calculator: schwab.com/rmdcalculator.

    Understand the taxes

    Your RMD is taxed as ordinary income at your personal federal income tax rate. State taxes might also apply. When you take your RMD, you can have state and federal taxes withheld immediately, or you may be able to wait until you file your taxes. If you have a Schwab Intelligent Portfolios account, the IRS requires us to automatically withhold 10% of any RMD for federal income taxes, unless you give us different instructions.

    Don't risk a 50% penalty

    It's important to make sure that you withdraw at least the required amount each year. If you withdraw less than the amount required in any given year, the IRS can impose a 50% penalty on the shortfall. For example, if you withdraw only part of your required distribution, you will owe a 50% penalty on the remaining portion you did not withdraw. You may withdraw more than the RMD amount, though that amount is also subject to taxes and won't satisfy your RMD requirements in future years.

    Scheduling your distribution

    Schwab Intelligent Portfolios makes it easy for you to schedule the distribution of your RMD. Once the required amount has been calculated, you can simply log into your account and request a withdrawal by indicating where you wish to have the money sent electronically.

    With Schwab Intelligent Portfolios, you can also set up automated distributions that are spread out over the year at whatever frequency you wish: monthly, quarterly, semi-annually, annually, etc. Whatever amount you indicate will automatically be sent electronically at your desired frequency to a brokerage account, checking account, or another linked account of your choosing.

    Put your RMD to work

    If you don't need your RMD for living expenses, you can reinvest the money into a separate Schwab Intelligent Portfolios account and keep it working for you.

    To understand more about the tax implications and other details of RMDs, read Schwab's RMD guide: http://www.schwab.com/public/file?cmsid=P-1624444

    David Koenig CFA®, FRM®, Vice President and Chief Investment Strategist for Schwab Intelligent Portfolios®

    How Schwab Intelligent Portfolios can help

    If you have IRAs at other financial institutions, consider bringing them together at Schwab. When you consolidate your IRAs into one Schwab Intelligent Portfolios account, you can: calculate just one RMD and manage it from one account; set up automatic withdrawals to control your RMD timing and frequency; and use our Goal Tracker tool to set up and track retirement income and project how long your income stream will last.

    The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

    This tax information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends that you consult with a qualified tax advisor, CPA, financial planner, or investment manager.

    All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

    Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

    Schwab Intelligent Portfolios is made available through Charles Schwab & Co., Inc. ("Schwab") a dually-registered investment adviser and broker dealer. Portfolio management services are provided by Charles Schwab Investment Advisory, Inc. ("CSIA"). Schwab and CSIA are affiliates and subsidiaries of The Charles Schwab Corporation.

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