US Markets ended a multiple-week stretch of down weeks, retracing some of losses experienced earlier this year. Analysts now will wait for Tuesday’s CPI numbers: have we seen peak inflation? Annex Wealth Management’s Dave Spano and Derek Felske discuss.

Throughout the summer, we quizzed our readers’ knowledge on Required Minimum Distributions and the questions that are commonly asked.

We’ve already recapped the first four questions of this eight-part poll, so here are the results of the second half!

Week 5: Can I withdraw more than the minimum required amount?

95% of responders were correct by selecting “Yes. However, be aware that the amount of your RMD, as well as any amount that exceeds the RMD, will be considered taxable income except for any part that was taxed before or can be received tax-free (such as qualified distributions from designated Roth accounts.”

Week 6: What if a mistake is made?

If you selected either A. “All is not lost if you or someone you entrust to do your RMD calculations makes a mistake.” or B. “Penalties can be waived if the account owner establishes that the shortfall in distributions was due to a reasonable error and steps are being taken to remedy the shortfall”, you were technically correct, but the actual answer was both A. and B. 64% of polltakers chose the right answer.

Week 7: Do I have to take an RMD if I own an annuity?

This question caused a bit more of a divide between respondents.

  • 42% said “It depends on the type of annuity you own.”
  • 16% said “No, you’re covered with the annuity.”
  • 37% said “Yes, you must take an RMD if you own an annuity, no matter what.”
  • 5% said “None of the above.”

The correct answer? It depends on the type of annuity you own.

If you own a variable annuity, and it is held in an IRA, the answer is yes. This is referred to as a “qualified annuity” by the IRS, meaning that it likely was funded with pre-tax money that requires you to pay taxes on your withdrawals, as well as take RMDs. Non-qualified annuity contracts offer tax-deferred growth of after-tax funds; they are taxed when annuitized, but as a general rule are not subject to RMDs. [1]

Week 8: What reporting obligations does my brokerage firm have with respect to RMDs?

20% of polltakers said firms don’t have any obligations, and 5% said their obligation is to not screw it up.

The correct answer was selected by 54% of responders: “Firms that serve as administrators to employer-sponsored retirement plans typically have the same responsibility for plan participant RMDs”

The IRS requires brokerage firms and other financial institutions that are custodians or trustees of traditional IRAs calculate or offer to calculate the RMD for IRA owners and to report this information to the IRS. [1]

 [1] Source article:

Next week’s Axiom will feature a new poll series: 8 Important Questions to Know When Finding the Right Financial Advisor. Stay tuned over the coming weeks!


The End of “Stretch” IRAs

The SECURE Act, passed in December 2019, made extensive changes to retirement plans and IRAs. Those changes have a significant impact not only on retirees, but also individuals that inherit IRAs. Even though the legislation is now over 2 years old, there are still some significant gaps as we continue to wait for final regulations and guidance about the impact on estate planning. 

This week’s Money Do: Take a look at the two biggest changes of the SECURE Act and consider if additional planning is required for your financial and estate plans. 

  • Permanently changing the Required Minimum Distribution (“RMD”) age from 70.5 to 72 
  • Eliminating the “Stretch” IRA for most beneficiaries 

RMD Changes 

The RMD changes are important to review within the scope of your financial plan, as the additional year or two before you are required to start taking RMDs extends your opportunities to do Roth Conversions. 

Additionally, while the RMD age is now 72, the age to do a Qualified Charitable Distributions from your IRA continues to be 70.5. As such, there is some opportunity to be charitably included and reduce your IRA balance and subsequent RMDs prior to the time when the RMDs become required. 

It’s also important to note that there is proposed legislation for Secure Act 2.0 that could again change the rules for when RMDs must start. We are constantly monitoring this possible legislation.  

Elimination of Stretch IRA 

The elimination of the Stretch IRA can have some unintended consequences when a non-spouse inherits an IRA. Prior to the SECURE Act, a non-spouse beneficiary of an IRA had the option of rolling the funds into an Inherited IRA, whereby the beneficiary could “stretch” out the income tax consequences over their life expectancy with small RMDs. 

The SECURE Act eliminated the “stretch” option for all but a few classes of individuals: 

1) Surviving Spouses 

2) Chronically Ill Individuals 

3) Disabled Individuals 

4) Individuals that are not more than 10 years younger than the account owner 

5) Minor Children of the account owner, but only until the age of majority (note: grandchildren are not eligible under this rule). 

So, if you inherit an IRA from someone who died in 2020 or later and are a non-spouse, you’re likely going to fall under the new “10-Year” Rule. 

The “10-Year” Rule still allows you to roll over the funds into an Inherited IRA, but instead of having your lifetime to spread out the income taxes, you must fully drain the IRA funds within 10 years after you inherit the funds, thereby accelerating the income tax recognition on the beneficiary. 

Inherited IRAs prior to 2020 are Grandfathered 

The good news is, if you previously inherited an IRA from someone who died prior to 2020 and have an inherited IRA, those accounts are grandfathered and will continue as “Stretch” IRAs for your lifetime. 

Knowing these changes are important to individuals who stand to inherit IRA funds, as proper tax planning for those individuals has become more important than ever before. 

Review Your Estate Plan 

If your estate plan provided that your retirement accounts should be payable to a trust upon your death, you will want to review your estate plan and discuss the impact with both your attorney and financial planner, as updates and changes may be necessary to maintain a tax-efficient transfer of your assets.