Knowledge Base: Required Minimum Distributions (RMD's)

Explore Required Minimum Distributions in RightCapital

RightCapital enables advisors to capture every element of a client's financial landscape — even comprehensive components like required minimum distributions (RMD's).

This article is designed to provide an overview of required minimum distributions and the accounts that they affect in RightCapital.

The information in this article assumes the advisor has the Planned Distribution method selected where the software will automatically calculate the RMDs. For more information on settings that impact RMD's in a client's profile click this link.

RightCapital RMD Overview

Required minimum distributions (RMD's) represent the minimum amount clients must distribute from qualified accounts annually to avoid tax consequences. For clients who reached age 70.5 on or after January 1st 2020, the required minimum distribution start age is 72. Clients who reached age 70.5 before January 1st 2020 are required to begin RMD's at age 70.5. As a default RightCapital will distribute RMD's at the appropriate age, based on the client's birthday. Users can customize RMD settings within the client methodology area of the financial plan.

Users can track required minimum distributions in a financial plan using the Retirement > Cash Flows > Accounts tab > Change "Ending balance by account" dropdown menu to "Required minimum distributions". Any underlined column headers in the cash flows can be clicked to provide more detailed information.

Accounts Subject to RMD's

The following accounts will be subject to required minimum distribution rules when they are entered into a client's financial plan. For more information on adding investment accounts to a client's plan please use this link.

  • 401(k) plans
  • Roth 401K plans
  • 403(b) plans
  • 457(b) plans
  • Traditional IRA's
  • SEP IRA's
  • SIMPLE IRA's
  • Inherited Roth IRA's
  • Inherited Traditional IRA's
  • Qualified Annuities
  • Qualified Pensions
  • Profit Sharing Plan
  • Employee Stock Ownership Plans
  • Employee Stock Purchase Plans

Generating RMD's

When generating required minimum distributions (RMD's) for qualified accounts, RightCapital divides the year end account balance by the appropriate RMD factor from the Uniform Lifetime Table to determine the appropriate distribution. The RMD factors we use are based on the client's age and can be found within the chart below. The only caveat to this calculation occurs when the co-client has an age difference of ten years or more.

Example: If a client is 73 years old and owns an IRA that was worth $100,000 at the end of last year, RightCapital would run the following calculation to determine the IRA RMD.

  • $100,000 (IRA year end balance) / 24.7 (RMD Factor) = $4048.58 (Scheduled RMD)

Year ending account balances can be found within the Retirement > Cash Flows > Accounts and Net Worth tabs. Required minimum distributions can be seen using the Retirement > Cash Flows > Accounts tab > Change "Ending balance by account" dropdown menu to "Required minimum distributions". For further details on RMD factors please refer to this IRS worksheet

RMD Generation when Clients Have 10+ Year Age Gap

When client and co-client have an age difference of ten years or more, RightCapital will adjust the RMD calculation to use factors from the IRS joint life expectancy table . This typically results in a lower RMD amount.

When the client and co-client have a large age difference, RMD's are calculated based on factors from Table II (joint life expectancy table), at the intersection of client and co-client's ages. For additional information on calculating RMD's when the client and co-client have an age difference of ten years or more please refer to this IRS worksheet. An example of the RMD factors we use in this scenario can be found within the chart below.

RMD's After Client Passes Away

When a client passes away within a financial plan, RightCapital will assume a spousal rollover rather than an Inherited IRA for accounts subject to RMD's. The rollover account will then calculate RMD's based on the year ending account balance and the surviving spouses uniform life table factors.

Inherited IRA's RMD"s

If a client owns an Inherited IRA or Inherited Roth IRA, RighCapital will automatically generate required minimum distributions regardless of the owner's age. Custom distributions to satisfy the 10-year distribution rule, applicable to non-spousal beneficiaries, can be detailed within the Profile > Net Worth > Inherited IRA data card.

Spousal beneficiaries of Inherited IRA or Roth IRA accounts, not subject to the inherited IRA will have two methods of calculating RMD's:

  1. If the original owner died prior to starting RMD's, RightCapital will use the surviving spouse's age and factors from their Uniform Lifetime table to calculate Inherited IRA RMD's.

  2. If the original owner dies on or after RMD's begin, RightCapital will use factors from the single life expectancy table 1 associated with the younger of, the surviving spouse's current age or the original owner's age at death. The factor is then used to generate an RMD for the inherited account.

Qualified Annuity RMD's

If the client owns a Qualified Annuity, RightCapital will generate RMD's based on the owner's age and factors from their uniform life table. Each Qualified Annuity entered will allow the user to customize income distributions that may or may not fully satisfy RMD requirements. If the RMD requirements are not satisfied through income distributions RightCapital will begin distributing additional income from the qualified accounts at the appropriate RMD start age.

Qualified Charitable Distribution(QCD)

The qualified charitable distribution (QCD) rule allows owners of traditional IRA's to exclude required minimum distributions (RMDs) from their AGI when the funds are donated to a qualified charitable organization. QCD's can satisfy part or all of the client's RMD's from their IRA.

Example:

If your 2018 RMD was $10,000, and you made a $5,000 qualified charitable distribution for 2018, you would have had to withdraw another $5,000 to satisfy your 2018 required minimum distribution.

RightCapital allows for three types of qualified charitable distributions . These can be added into the client's financial plan through the Profile > Goals > Add Goal > Gift > Charitable Giving data card.

  • IRA (Qualified charitable distribution): This allows individuals over 70 ½ to donate funds from an IRA directly to a charity tax free. QCD's will also count towards their required minimum distribution for that year. When selected users will see a Planned Distribution in the Retirement > Cash Flows as well as a goal to reflect the contribution to charity.
  • Inherited IRA (Qualified charitable distribution): This allows individuals over 70 ½ to donate funds from an Inherited IRA directly to a charity tax free. QCD's will also count towards their required minimum distribution for that year. When selected, users will see a Planned Distribution in the Retirement > Cash Flows as well as a goal to reflect the contribution to charity.
  • IRA annuity (Qualified charitable distribution): This allows individuals over 70 ½ to donate funds from a qualified annuity to a charity tax free QCD's will also count towards their required minimum distribution for that year. This is only available if the distribution setting for the annuity is ‘Regular withdrawals’. When selected users will see a Planned Distribution in the Retirement > Cash Flows as well as a goal to reflect the contribution to charity

In order for QCD's to offset RMD's in RightCapital, users will need to use the appropriate "planned distributions method" setting. When the "Greater of RMD and manual distribution" is selected, QCD's entered as a charitable giving goal will offset the automatically scheduled RMD within the financial plan. See settings that impact RMD's below for additional information.

Settings that Impact RMD's

Each client plan can be customized to produce outcomes that mirror the advisors unique philosophy. There are two settings in each plan that will have an impact on the client's Required Minimum Distributions. To access these settings advisors can open the client plan > Gear icon > Settings > Methodology area. Here advisors can customize the Planned Distribution Method and choose to take annuity RMD's from IRA accounts First. These settings can be adjusted globally for all new clients in the Advisor Portal > Gear Icon > Account > Client Presets Tab.

Planned Distribution Method

This setting determines how manual distributions interact with Required Minimum Distributions (RMDs) calculated automatically by the system. Options include having the manual distributions added to the RMDs, having the system calculate the greater of the manual distributions and RMDs, or overriding the system's RMD calculation to just use the manual distributions. This setting applies across all account types.

RMD added to manual distribution is the default; in this case, RightCapital will add the amount of any inputted distributions to the calculated RMD amount.

Greater of RMD and manual distribution means that if the RMD calculated is greater than the distribution entered, RightCapital will use the RMD amount; otherwise the inputted distribution will just distribute the amount indicated.

No RMD, manual distribution only means that RightCapital will not automatically calculate the RMD and will only use the inputted distributions.

For more, see the article on income distributions.

Take Annuity RMD from IRA accounts first

The option to take annuity RMD's from IRA accounts first allows advisors to adjust how RMD's affect qualified annuities built into the financial plan.

This setting, if checked, allows you to delay taking withdrawals from qualified annuities with a lifetime income guarantee (set up with a distribution type of 'Lifetime Income') by satisfying the annuity's Required Minimum Distributions (RMD) from the client's traditional IRA accounts or other qualified annuities. This allows for the ability to delay beginning withdrawals on the lifetime income annuity in order to provide a higher guaranteed income amount for your clients.

If the setting is unchecked, we will calculate the RMD for lifetime income annuities each year starting in the year the client turns 70 1/2, and will distribute the greater of the RMD or the client's lifetime income amount in that year.

Also, if this setting is checked, once the client has started taking lifetime income withdrawals, if the client's RMD exceeds the lifetime income amount we will take the excess from the client's IRA or other qualified annuities.

Note:

Only use this setting if your client has sufficient funds in their IRA or other qualified annuity to cover the additional RMDs. If there is insufficient funds in their IRA or qualified annuity to cover the additional RMDs, the client's RMDs will be understated as we will not take the balance from the annuity.

Whether the setting is checked or not, once lifetime income withdrawals begin, those withdrawals will count towards the total RMD required across your clients' IRA and qualified annuity accounts. If the lifetime income amount exceeds the RMD calculated for the lifetime annuity, we will reduce the RMD from the client's traditional IRA by the excess amount.

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For additional assistance on Required Minimum Distributions within RightCapital please contact Support.