February Study Question of the Month

Sarah, age 30, wants to begin saving for retirement. She is unmarried and has $5000 to put in a retirement vehicle. Which would be the BEST recommendation for her to invest in. Continue reading

Sarah, age 30, wants to begin saving for retirement. She is unmarried and has $5000 to put in a retirement vehicle. Which would be the BEST recommendation for her to invest in.

  1. Put $2500 in an IRA, and $2500 in a variable annuity
  2. Put all $5000 into an IRA
  3. Put all $5000 into a variable annuity
  4. Put all $5000 into a variable annuity within an IRA

Answer: 3. RMD rules apply to all employer-sponsored retirement plans including 401(k) and 403(b) plans.

Explanation: RMD is determined by the account-holder’s life-expectancy and the age of their beneficiary. The RMD must be drawn from qualified retirement accounts by April 1st of the year following the account holder’s 72nd birthday, unless the account holder turned 70 1/2 in 2019 or earlier, in which case RMDs must start when the account-holder is 70 and 1/2. RMD rules apply to all employer-sponsored retirement plans, including profit-sharing plans, 401(k) plans, 403(b) plans, and 457(b) plans. The RMD rules also apply to traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs. The RMD rules also apply to Roth 401(k) accounts, which are a hybrid of the Roth IRA and the traditional 401(k) plan. However, the RMD rules do not apply to Roth IRAs while the owner is alive. An account owner may withdraw more than the RMD, the “M“ stands for minimum not maximum. However, RMDs may not be rolled over to a new tax-deferred account.

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