The Independent Investor
By Bill Schmick
Update on the Strategic
Planning Process
IRA Distribution Time
Information abounds on why and when you should contribute to a tax-deferred sav
ings plan such as an Individual Retirement Account (IRA). Less is known about what
happens in retirement when you have to take money out of these plans. For those who
turned 7OV2 years or older in 2013, pay attention, because you have until April 1 to take
your first distribution.
The original idea behind tax-deferred savings was to provide Americans a tax break
in order to encourage us to save towards retirement. Individuals could stash away
money tax-free while they were working and then take it out again once they retired,
when they were presumably earning less and at a lower tax rate. The government de
termined that once you reached 70^2 you have until April 1 of the next tax year to take
your first distribution. If you have already turned 70Vi, remember that you must take
another distribution by the end of 2014.
Officially, it’s called a Required Minimum Distribution (RMD) and applies to all em
ployer-sponsored retirement plans. That includes profit-sharing plans, 401(K) plans.
Simplified Employee Pension Plans (SEPS), Salary Reduction Simplified Employee
Pension Plans (SARSEPS) and Savings Incentive Match Plans for Employees (SIMPLE
IRAs), as well as contributory or traditional IRAs. The individual owner of each plan is
responsible for computing the RMD and taking it from their accounts. There are stiff
IRS penalties (of up to 50% of the total RMD) levied on those who fail to comply.
The RMD is calculated by taking the total amount of money and securities in each
IRA or other tax-deferred plan, as of December 31 of the prior year, and dividing it
by a life expectancy factor that the Internal Revenue Service publishes in tables. The
document, “Publication 590, Individual Retirement Arrangements,” can be easily ac
cessed over the internet. As an example, let’s say at the end of last year your IRA was
worth $100,000. You are 72 years old. Looking up the life expectancy ratio in the IRS
table for that age, which is 15.5, you divide your $100,000 by 15.5. Your RMD for this
year would be $6,451.61 (100,000/15.5 = 6,451.61).
Remember that you must compute your RMD for every tax-deferred account you
own. However, you can withdraw your entire distribution from just one account if you
like. You can always withdraw more than the RMD from your accounts, but remem
ber that whatever you withdraw is taxed at your tax bracket. If you make an error and
withdraw too much in one year, it cannot be applied to the following year. And before
you ask, no, you can’t roll the RMD over into another tax-deferred savings account.
What happens if you forget or for some reason you cannot take your RMD in the
year it is required? You might be able to avoid the 50% penalty if you can establish
that the shortfall in distribution was the result of a reasonable error and that you have
taken steps to remedy the situation. You must fill out Form 5329 and attach a letter of
explanation asking the IRS that the penalty be waived. Your accountant should be able
to furnish the form and help you with the letter.
For those who have an Inherited IRA, you, too, may have to take an RMD before the
end of 2014. The calculations and rules are somewhat different. Generally, if you have
received the inheritance this year, as the beneficiary, you have the choice of taking one
lump sum, taking the entire amount within five years or spreading out the distribu
tions over the course of your life expectancy, starting no later than one year following
the former owner’s death. The IRS produces a table for use by beneficiaries in Publica
tion 590 as well.
Many retirees have a hard time remembering to take their RMD each year. It is a
good idea to ask your money manager or your accountant to handle the distribution or
at least to remind you each year when the RMD is due. The last thing you want to do is
give back to the IRS half your hard-earned savings each year.
Bill Schmick is registered as an investment advisor representative and portfolio manag
er with Berkshire Money Management (BMM), managing over $200 million for investors
in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily
represent the views of BMM, and none of his commentary is or should be considered
investment advice. Direct your inquiries to Bill at 1-888-232-6072 or
Bill@afewdollarsmore.com. Visit www.afewdollarsmore.com for more of Bill’s insights.
By John Brodman
The Strategic Planning Steering Committee (SPSC) met on January 9 to discuss a
first draft of the entire Strategic Plan that was produced over the holidays. The draft
plan focuses on seven strategic areas which; in no particular order of importance,
are; Beach Preservation, Infrastructure, Community Involvement, Public Safety
and Disaster Planning, Environment/Natural Resources, Residency/Commercial
Development and Fiscal Planning. In the draft plan, each of these strategic areas is
accompanied by specific goals and objectives which both define the area and set out
measurable milestones for achieving favorable outcomes.
Suggestions and comments on the first draft of the plan were then incorporated
into a revised draft of the plan, which was made available simultaneously to the
SPSC and to the Board of Commissioners (BOC) on January 15. Commissioners
were then given one week to review the plan and get back to the Steering Commit
tee with their comments, questions and suggestions by January 22. The Steering
Committee then considered the comments from the Commissioners and incorpo
rated them into a presentation and discussion of the full Strategic Plan report that
was scheduled to occur on January 30, after press time of this issue of The Shoreline,
between the SPSC and the BOC, during the Commissioners’ annual ofFsite plan
ning meeting. The results of this meeting are to be incorporated into a final draft of
the Strategic Plan.
If all goes well, there will be a roll-out and public hearing on the Strategic Plan,
possibly as early as the regular Board of Commissioners’ meeting scheduled for
February 13. After the public hearing, the BOC will be asked to formally adopt the
plan. Once adopted, the plan will be posted on the town’s website, and highlights of
the plan will be published in an upcoming edition of The Shoreline.
It is important to keep in mind that a strategic plan is a living document that
is meant to evolve over time as circumstances in the town and priorities change.
Nothing is set in concrete, and the Strategic Planning Steering Committee is cur
rently discussing options for reviewing and updating the plan in the future.
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February 2014 I The Shoreline
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