When it comes to financial planning and investing, many of us have more questions than answers. The “What the Wealth?!” Retirement Podcast offers sound financial information and guidance on numerous concerns to help Gen X and Y families and professionals as well as 50-Forward individuals create the lives they love. Jonathan P. Bednar, II, CFP, joined Paradigm Wealth Partners in January 2010, where he is in partnership with his father, Jon P. Bednar. As a Wealth Advisor, Jonathan enjoys guiding his clients to make informed financial decisions and planning as a means to solve their investment and retirement concerns.Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through Paradigm Wealth Partners, a registered investment advisor and separate entity from LPL Financial.
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(Short episode) One small assumption can turn a routine Required Minimum Distribution (RMD) into an IRS penalty, and it happens to smart retirees all the time. We walk through the real-world RMD mistakes we see most often, using simple examples that make the rules stick without the jargon overload.
The “married filing jointly” trap: Why you still cannot satisfy two spouses’ IRA RMDs from one person’s account, even if the household withdraws the right total. Then we get practical about aggregation rules, because not every retirement account plays by the same combining logic. Traditional IRA RMDs can be aggregated across multiple IRAs, but 401(k) RMDs generally cannot. We also explain the 403(b) exception, and why mixing up IRA, 401(k), and 403(b) rules can create an accidental shortfall on the account you never touched.
We cover the rollover mistake that surprises people consolidating an old 401(k) into an IRA after reaching RMD age. RMDs cannot be rolled over, and skipping that step can lead to an excess IRA contribution and an ongoing penalty until it is fixed. If you care about retirement tax planning, RMD rules, and avoiding unnecessary IRS penalties, this is a quick listen that can save real money.
If you or someone you care about could use the help of a financial advisor and sees the value in establishing a financial plan, please reach out to me.
If you're at the age where RMDs are showing up in your life, you already know the basics. The IRS requires you to start pulling money out of your retirement accounts. And if you don't, there's a penalty. But here's what I've noticed after walking hundreds of clients through this. The mistakes that actually cost people money aren't about missing the RMD deadline, they're about assumptions, the kind anyone could make. And I want to walk you through the three that I see most often so you know exactly what to watch for.
Mistake number one is the individual mistake. Let's use, let's say Tom and Janet. They're both 73. They need to begin taking their RMDs. And like most married couples, they think of their finances as one household, one budget, one tax return, one financial plan. So when Tom sat down to handle this year's RMDs, this is the first year he needs to take them, or they need to take them, he had what seemed like a perfectly sensible idea. His IRA balance is a lot bigger than Janet. So what he thought he would do is why not just pull enough out of his account to cover both requirements? It's the same household, same tax return, same dollar amount, same RD amount, no matter how you slice it. Unfortunately, that's not how the IRS sees it. The I in IRA stands for individual, and there's no such thing as a joint IRA. So Tom's account in this situation is satisfied, however, Janet's is not. And so now she's the one carrying a 25% penalty on her shortfall, and it would be reduced down to 10% if it's caught within two years. But the real penalty on money she never touched for a rule she never knew existed. So I bring this up first because it's one that I see quite often. Married couples think that if they share everything for decades, including their finances, it's natural to think that the retirement accounts work the same way. And they don't. Your RMDs are separate. So your retirement account, you need to take an RMD for each of your retirement accounts as a person. You know, each person has to satisfy their own RMD.
The next is the aggregation mistake. So every account is an individual, that's rule number one. Now let's look at where it gets a little more complicated because not every type of account plays by the same combining rules. If you've got multiple IRAs, you're in luck. You can calculate the RMD for each one, but you're allowed to take the total from just one account. Or you can spread it across however many you'd like. So you're not forced to take your complete or your total RMD from one account if you don't want to. You can. You can bunch them into one account. You can also spread them out amongst multiple IRAs if you have multiple. 401ks don't work that way. If you've got two 401ks from two different employers, or one 401k and one IRA, each one needs its own RMD. So taken from its own account, and you can't combine them. Even if they're identical plans or or or strategies, they have to be separate distribution. So 401ks have their own RMD distribution requirement. If we look further at 403Bs, those plans can get an additional exception. You can combine multiple 403Bs with each other, but not with an IRA or 401. So unfortunately, plenty of people assume their 401ks and 403Bs work the way an IRA does. Just pull it all from one place. But if you do that and you don't fully understand the RMD rules, you end up with a shortfall penalty on the account you never took a distribution from.
Mistake number three, the rollover mistake. Let me introduce you to Frank. Frank's 74 years old. He has 650, 650,000 sitting in an old 401k from a job he left years ago. And he's thinking about rolling it into an IRA. Consolidates, uh, simplifies life. He can still keep his plan and uh investments and let that money continue growing and working for him. But Frank's already RMD age. And so there's a rule that catches people off guard. RMDs cannot be rolled over. Not partially, not into your Roth IRA, not at all. So at 74, Frank's life expectancy factor puts his RMD this year at 25,490. If Frank rolls his entire 401k balance into his IRA without first pulling that 25,490 out, the IRS doesn't see a clean rollover. It sees an excess IRA contribution, and that comes with its own penalty: 6% every year until it's fixed. So unfortunately, there's not a shortcut around this one. The RMD must come out first, and then once that's done, whatever's left is eligible to be rolled over or consolidated.
So these three mistakes are all completely avoidable once you know how to look for them. And that's really the point of this channel, not to scare you, just to help you make informed decisions so that you're seeing the full picture before it costs you something. I'm Jonathan Bedner, certified financial planner at Paradigm Wealth Partners. If you'd like a second set of eyes on your RMD strategy, your retirement plan, I'd be glad to walk through it with you. Link is in the description below. Be confident in your retirement. Thanks for joining me on another episode of What the Wealth. If you enjoyed the episode today, smash that subscribe button. It helps me more than you think. Also, if you found this episode insightful and a light bulb went off, share it. Your friend Aunt Judy, the random guy in the office who's always talking about investments. Wealth isn't about just the cha chain. It's about our choices, chances, and changing our financial futures.
The information in this podcast is informational and general in nature and does not take into consideration the listener's personal circumstances. This podcast is not intended to be a substitute for specific in financial, legal, or tax advice. You should consult the approved qualified professional prior to making a final decision. Security is offered through LPL Financial, member FINRA SIPC. Paradigm Wealth Partners is the other business name for Independent Advisor Alliance. Investment Advice offered through Independent Advisor Alliance, a registered investment advisor, Independent Advisor Alliance, and Paradigm Wealth Partners are separate entities for LPL Financial.
