Get Creative in Helping Your Clients Manage Unwanted RMDs

The SECURE Act of 2020 and the RMD Puzzle

Many clients don’t want or need to take the RMDs each year.  They may have goals of leaving the asset behind to their loved ones instead.  How to manage RMDs is often the question.  If left unanswered, they can be spent, gifted, and taxed in disadvantageous ways.  The SECURE Act of 2020 brought many changes to the RMD requirements as well as the rules affecting their beneficiaries’ options once they pass on.

Reach out to your clients that don’t enjoy taking RMD’s.  These activities will lead to sales, even if they don’t involve the SECURE Act provisions.  At a minimum, it will give your clients the assurance you are aware of changes in law, reviewing their options, and can help them establish the right path for transferring assets to their beneficiaries.

Annuity Solutions for RMDs

Most annuities are RMD friendly.  If the RMD amount for an individual annuity is ever larger than a surrender-free withdrawal, annuity carriers will typically waive surrender charges to accommodate the RMD.  Both withdrawals and/or lifetime income from qualified annuities count towards RMDs.  Retirees that don’t need their RMD for income can leverage annuities and life insurance to maximize a plan for their beneficiaries.  Some great ideas to solve this puzzle with annuities include:

  • Distributions from lifetime income riders can help preserve other investments that may be more favorable for beneficiaries to inherit.
  • Transfer qualified accounts to annuities with enhanced death benefits.
  • Buy life insurance and pay those premiums with RMD’s.

New RMD Rule Highlights

  • The SECURE Act changed the rules regarding required minimum distributions starting in 2020
  • Starting January 2020, the RMD minimum start age is 72 (previously 70.5)
  • Those who turned age 70.5 in 2019 or earlier must default to the previous RMD rules

New Inheritance Rule Highlights

  • Beneficiaries who inherit a qualified retirement account must distribute 100% of those assets within 10 years of the deceased’s death but there is no specific annual RMD required during those 10 years.
  • There is an exclusion that allows some beneficiaries to stretch RMDs over their own life expectancy.  Those excluded from the 10-year rule are:
    • Surviving Spouses
    • Minor Children
    • Disabled or chronically ill persons
    • Siblings not more than 10 years younger than the deceased person

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