10 Common IRA Distribution Mistakes:
Lessons Learned

Oakbrook has direct experience supporting Required Minimum Distributions (RMD) via our WealthWorx® application. With our experience, we thought it would valuable to share some of our “lessons learned.”

IRA Accounts

  • Data Gathering Pressures
    • It is important for advisors to have an account owner’s data on file and for it to be accurate so that the RMD begin date can be calculated properly. 
      • A best practice is for your account onboarding process to gather this data and store for retrieval.
  • Notifications
    • The advisor is required to notify account owners by January 31st the amount of RMD that must be taken and by which date.
      • In the 1st year, owners that are age 70 ½ years have until April 1st of the following year to take that first payments.
      • All subsequent years, the payments must be taken by December 31st of that year’s RMD
  • Client Input
    • A client can inform an advisor that one of their IRA’s will satisfy all the RMD that is required to be taken in a year
  • LESSON LEARNEDA common mistake is that a spouse’s DOB is not obtained in order to determine if the sole beneficiary and spouse are equal to or younger than the age of the owner by 10 years or more.
    • If a spouse is younger than the account owner by 10 years or more, the joint table is used to determine which factor to calculate RMD on year ends fair market value.
    • If the sole beneficiary and the spouse or a sole spouse is not younger than the owner by 10 years or more, the uniform table is used to determine which factor to calculate RMD on year ends fair market value.
  • Roth IRA’s are not subject to RMD until the account owner becomes deceased and the beneficiaries create inherited IRA’s with the advisor.
  • PROCESS RECOMMENDATION:
    • A good process to determine if an owner’s age is 70 ½ years for automation is to determine whether or not the account owner turns 70 from July 1st of the last year to June 30th of the current year.
      • If this is the case, then they will be 70 ½ years old by end of this year.
      • This is the only time the owner has until April 1st of the following year to take their RMD Payment.
    • For example, an account owner born in April of 1946 would be 70 years old in April 2016.  This means that in January 2016, this account owner needs to have RMD calculated using 12/31/2015 year end fair market value.  This first time user has until April 1st 2017 to take that RMD amount as payment.
    • Alternatively, an account owner born in September 1946 would not be 70 ½ years old by December 2016 so their first time RMD calculation would be in January of 2017 using 12/31/2016 year end fair market value and they would have until 4/1/ 2018 to take their first payment.

July 8, 2016

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