12.13.24: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.
Speaker1:
Welcome back to the federal retirement Show. I'm your host, Val Majewski with American Benefits Exchange. I really appreciate you taking the time out of your schedule to view our content and see the information that we like to provide for you, the federal employee that's looking for guidance and possibly the right direction to go in when it comes to your benefits and retirement information. Now today's topic. We're nearing the end of the year and as of today is December 2024, nearing the end of the year. And a lot of people have had questions about required minimum distributions, RMDs, and when they're supposed to take it, when they have to take it, when they are required to take them. Now, first of all, what is an RMD right. Well, required minimum distribution is something that is set forth for those that have qualified accounts with traditional monies, like a traditional portion of your TSB or traditional IRA or something similar, where the government basically says you're above a certain age or you've attained a certain age, and now you have to start making withdrawals from your account so you can start paying some taxes. That's the easiest way that I can explain it. That's the way that I understand it. Um, the technical definition is probably not. Yes. So we can start getting taxes from you. But basically that's what it's about. The money is sitting there in a tax deferred type of plan, uh, accounts that you have not yet paid tax on, like the traditional bucket in your TSB.
Speaker1:
And now you have to start taking a certain percentage out per government guidelines, right. The IRS, the government will tell you how much you have to take out as far as a percentage each year. And that is so you can start taking this money out. You can start paying taxes on it. That does not mean you have to spend the money, but it just means that you have to start paying tax on the amount that is withdrawn from the R&B. And if you do not take the RMD by the deadline, which is generally the end of the calendar year, then you are imposed a penalty, which is up to 50% of the amount that was supposed to be taken. So this could be a huge penalty for you if you do not take it. So you want to make sure you know the rules. You want to make sure you understand how it is. What is the timing of when you need to take an RMD. So we're going to go over that a little bit today for you federal employees, but also discuss a situation that comes up a lot right. People think that they're either exempt from an RMD for certain reasons or they don't have to take one. I'm going to go over a way in which you don't. You can or cannot be subject to to RMDs. Right. So we'll go over a couple of different things here. Uh, first thing it says TSP and RMDs.
Speaker1:
When do I need to begin? Well, let's let's go over a situation. Okay. Let's say that you're an active federal government employee and you're beyond your required minimum retirement age. Okay? You're an active federal employee. You're beyond your required minimum distribution age or for RMDs. Um, do you need to take an RMD from your TSP if you're still employed? We'll cover that. What about your non TSP accounts? And then what if you roll your money out of TSP. So we get asked these questions a lot especially at the end of the year. Uh we've got folks that we've helped. They're our clients and people that we've assisted where we need to go over these things, whether they're still employed by the government or they've separated or they've done certain things that that subject them to RMDs. We want to make sure that you're taking care of it so you do not get penalized. As I mentioned, the penalty can be pretty hefty, and you don't want to pay the government any more than you already have to. So let's say you are an active federal employee and you're beyond your required minimum retirement age. How does this work? Well, first of all, you might say, what is my minimum retirement age? So let's look at that. Okay. So RMDs need to be taken if you are above these ages based upon your birth year. Now a lot of you listening to this or watching this, perhaps you are 1960 and beyond is when you were born.
Speaker1:
Then your minimum retirement age would be 7575. It used to just be 70.5 for years, and they've steadily increased it. For those that are born after of 1949 or after June 30th, 1949, it's been going up. But if you're in 1960 or beyond or later your birthday, your RMD is age 75. So I'm gonna leave this up here. The first question was if I'm an active federal government employee and I've hit my RMD age, right, I've hit my required minimum distribution age. Do I need to take a RMD from my TSP? I'm going to speak slow here so we can make sure we're going through this because there's a couple of different things. If you are an active federal employee, your your your 41K is your TSB. If you're an active federal government employee, you've hit your RMD and you're going to have some money in your traditional portion of your TSP. You are not required to take an RMD while you are still working, because you are employed by the job that you have your 401 K through, so you do not have to take one yet. Yet. Now, once you separate from service and you're beyond your RMD age, then yes, you will now be subject to RMDs from the amount of money that's in your TSP. But while you are working for the government, you are not required to take an RMD from your TSP or the eligible portion of your TSP. Very important. Okay, so if I go back and ask the same questions though, what about non TSP accounts.
Speaker1:
Now just because you're still working your RMD eligible non TSP accounts will be subject to RMDs. So that's important. So it's not all of your accounts, it's just the TSP that will not be subject if you are actively working, but your other accounts that are eligible for RMDs. I said your traditional IRAs, maybe an old 403 B or some other kind of qualified account that's pre-tax, that's subject to RMDs if you're no longer working there. Right. Those are not, uh, attached to your federal employment, and it's just your TSP that's not subject to RMDs. Those other accounts are subject to those. I just want to be clear there. Okay. So now let's look at a different situation, because federal employees, at some point in your career while you're working, you can roll money out of TSP into your own IRA account. I just said that if you're actively working, your TSP is not subject to an RMD. A lot of acronyms here, so hope you're following. So if you take advantage of the in-service withdrawal option because you're age 59.5 or older, and you move money out of TSB into your own IRA. Even though you're actively working and I just said you are not subject to an RMD within your TSB. The money that you roll out of your TSB, even though you're still working, will be subject to RMDs. So that is something to take into consideration when looking at options for a TSB transfer.
Speaker1:
Withdrawal or rollover is now, if you're still working, it's the RMD implications. If you don't want to take RMDs, then maybe that's something you discuss. You know, with your family, with your spouse, with whoever's guiding you to make sure that you're not surprised. By now, you're subject to RMDs because, as I mentioned, if you didn't realize you'd now be subject to RMDs and you get hit with a penalty, that's a problem, right? That's a problem. So I just want to make sure that we understand exactly what's going on here and that you're you're making sure that you're limiting your liability when it comes to what you need to take out and taxes and penalties and all of that stuff. So there's another thing also that I want to discuss I didn't put on here, but let's say you do retire. So you're an active federal government employee. You got money in your TSP and you do retire after being eligible for an RMD. So while you're working, you didn't have to take an RMD. Once you retire, you are now responsible for an RMD in that year in which you retire. So let's look at another situation though, and say once you do retire, you want to roll that money out or take that money out and put it into your own IRA, you're no longer contributing to TSP. And you said once you retire, once you separate from service, you want to get it out of TSP and move it elsewhere.
Speaker1:
It's very important. Yes, you now are subject to an RMD from your TSP. Very important that you do this properly so that you don't get hit with some other sort of penalty when you do a rollover. In this situation. I'm going to recap it because I want to say it one more time to make sure I've got it right. You're a you are an active federal employee that went beyond your RMD age while you were working. You were not subject to the RMD. You're retired, you're now subject to an RMD from your TSP. So and you also want to roll that money out into another plan. It's very important that you do not roll the entire balance out. You leave the RMD amount in your TSP, whatever that is, or you take the RMD from your TSP first before rolling the remainder. Okay? Because if you don't do that, if you set all of your money to the new IRA and they accepted all of that and you didn't take the RMD, now there can be an additional penalty assessed on top of that for not taking the RMD properly. So if you retire, you now become eligible to take an RMD. You have to take the RMD from your TSB. In order to avoid any penalties. So just making sure that you're talking to somebody that knows what's going on, that has your best interests in mind, that knows the rules and and can guide you through this. If there's any questions or comments or things that you have, you want to reach out to us.
Speaker1:
You want to go over your situation, see if it makes sense for you to do these things, or just make sure that you're set up properly and you know what your situation looks like when it comes to your future RMDs. Reach out to us. Go to our website. Federal Retirement show.com. Fill out the form one of our reps across the country. If it's not me personally, we'll be reaching out to you to go over your entire situation and answer any specific questions you might have. But the goal is you need to to know when you're eligible or need to take an RMD. Number one, to know how to properly do it so that you avoid any unnecessary penalties. Also that the timing of it. When do these things need to be done, generally speaking, just in general. You need to take an RMD by the end of the calendar year in which the RMD is due. Now there's an exception. It's the first time you're going to take an RMD. It needs to be done by April 1st of the following year. Your first R&D is eligible. So I'll give you an example. Let's say you're retired right now. You're retired in 2024 and you were eligible for an RMD in 2024. Generally speaking, you'd have to take that RMD by December 31st, 2024, but since it's your first one, you can postpone it a little bit until April 1st of 2025.
Speaker1:
Now, that doesn't avoid having to pay an RMD in 2025. You'll still have to take an RMD by December 31st of 2025. So just the timing of it, knowing how much knowing which accounts are subject to an R&D, which accounts you can pull RMDs from, right. There are other rules that we can talk about where it's you said, hey, I've got a lot of these types of accounts. Can I just take all of my RMDs from one of those accounts? It depends. For example, if you have money in TSP and you have money in outside IRAs and you say, well, the the combined RMD between both of them, can I just take it from one or the other? The answer would be no. You'd have to take separate ones based on the classification of TSP and your outside traditional IRA. So just understand the rules. Understand the timing, understand the amounts, understand the penalties is huge when it comes to your TSP and required minimum distributions or RMDs. So I hope you found this information helpful. As we near the end of the year, make sure you're getting that RMD taken care of or satisfied so you're not subject to any additional penalties. If you do have questions, I said reach out to us. Go to Federal Retirement Show.com fill out the form. We'll be in contact. We'll go over your entire situation to get your questions answered. Thank you for joining me today, and I look forward to seeing you on a future episode.
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