FINANCIAL WEBINAR SERIES REQUIRED MINIMUM DISTRIBUTIONS 1 2020

FINANCIAL WEBINAR SERIES REQUIRED MINIMUM DISTRIBUTIONS 1 2020 July

5 QUESTIONS BABY BOOMERS WANT ANSWERED 1. 2. 3. 4. How do I calculate my RMDs? How do I gauge the taxes on my RMDs? Can I save taxes? How are the rules for beneficiary designations different from other accounts? 5. How do I know if my asset allocations are appropriate for my RMDs? 2

If you stay until the end, You’ll receive a SPECIAL OFFER! ?

WHY DO RMDS EXIST? The government wants you to save for retirement and gives you incentives to do it. These are called pre-tax contributions and taxdeferred interest growth. But the IRS still wants its cut after you’ve retired! Thus — RMDs The annual amount that must be withdrawn from a traditional IRA or qualified retirement plan after the account holder reaches a certain age 4

How Do I Calculate My RMDs? IRS Uniform Lifetime Table AGE DISTRIBUTION PERIOD 70 27. 4 82 17. 1 94 9. 1 106 4. 2 71 26. 5 83 16. 3 95 8. 6 107 3. 9 72 25. 6 84 15. 5 96 8. 1 108 3. 7 73 24. 7 85 14. 8 97 7. 6 109 3. 4 74 23. 8 86 14. 1 98 7. 1 110 3. 1 75 22. 9 87 13. 4 99 6. 7 111 2. 9 76 22. 0 88 12. 7 100 6. 3 112 2. 6 77 21. 2 89 12. 0 101 5. 9 113 2. 4 78 20. 3 90 11. 4 102 5. 5 114 2. 1 79 19. 5 91 10. 8 103 5. 2 115 + 1. 9 80 18. 7 92 104 4. 9 81 17. 9 93 9. 6 105 4. 5 LTable III (Uniform Lifetime) https: //www. irs. gov/pub/irs-tege/uniform_rmd_wksht. pdf 5

How much will my RMDs be? Your RMD Equals: Balance of your account on Dec. 31 st (of the preceding year) ÷ Your IRS-assumed life expectancy (LE) Example: $100, 000 IRA ÷ 25. 6 (LE at age 72) Uniform Lifetime Table Formula Decreases by less than 1 year for each year you age. It is recalculated annually in decimals: Age 72 / LE-25. 6 Age 73 / LE-24. 7 Age 74 / LE-23. 8 This formula applies to unmarried IRA owners and owners whose spouses are not more than 10 years younger. = $3, 906 RMD* *Source: Investopedia. com 6

Can annuity income be used to cover my entire RMD? NO Example: $1 M IRA with 4% RMD = $40, 000 $500, 000 Immediate annuity w/ $35, 000 payment Bond, CD, Mutual fund RMD = $35, 000 RMD = $5, 000 $20, 000 7

How do RMDs work with 401(k)s I haven’t rolled over yet? Example: 72 -year-old w/$1 M in savings $500 K = $20, 000 RMD $250 K IRA-1: $10, 000 $250 K IRA-2: $10, 000 $250 K 403(b): $10, 000 $250 K 401(k): $10, 000 From any combination of accounts? NO! They must be taken from these. 8

Accounts whose RMDs must be calculated and taken separately: Account whose RMDs are calculated and taken together OR separately: 401(k) 457 403(b) IRA 9

How does taxation work with RMDs? • RMDs are 100% taxable as ordinary income • No capital gains tax • Exception: If there any nondeductible (after-tax) contributions, the withdrawals are prorated

How much extra tax liability would my RMD create? It depends on your marginal tax bracket, which is based on your total taxable income as a single or joint filer. 2021 Taxable Income Brackets and Rates TAX RATE SINGLE FILERS MARRIED JOINT FILERS HEAD OF HOUSEHOLD FILERS 10% Up to $9, 950 Up to $19, 900 Up to $14, 200 12% $9, 951 to $40, 525 $19, 901 to $81, 050 $14, 201 to $54, 200 22% $40, 526 to $86, 375 $81, 051 to $172, 750 $54, 201 to $86, 350 24% $86, 376 to $164, 925 $172, 751 to $329, 850 $86, 351 to $164, 900 32% $164, 926 t $209, 425 $329, 851 to $418, 850 $164, 901 to $209, 400 35% $209, 426 to $523, 600 $418, 851 to $628, 300 $209, 401 to $523, 600 37% Over $523, 600 Over $628, 300 Over $523, 600 https: //taxfoundation. org/2021 -tax-brackets/ 11

Don’t forget about Social Security! Provisional Income Threshold § Adds all income sources + tax-free municipal bond interest + ½ your SS benefits. If the total is over $25 K for single or over $32 K for married: § A portion of your SS benefits (up to half*) can be taxed. § Below the threshold, SS benefits are tax-free § If the total is over $34 K for single or $44 K married, up to 85% of your SS can be taxed * Does not mean half will be taken in tax, but that half must be claimed as income. 12

What if I don’t need my RMD money, how should I spend it? VACATION RE-INVEST GIFT IT LIFE INSURANCE 13

The Importance of Paying Attention to Beneficiaries If you die: • Your spouse, as sole beneficiary, can roll your entire IRA into his or her IRA • The general rule for non-spousal beneficiaries is that the entire IRA has to be distributed within five years • With the updated SECURE Act, you can now only use the “stretch IRA” for 10 years for a non-spouse

Per Capita vs. Per Stirpes Per Capita Per Stirpes “By total head count” or “by total number of individuals. ” “By representation” or “by class. ” In a “per capita” inheritance, should both parents and one beneficiary child die, the IRA would be divided equally among the remaining beneficiary children. In a “per stirpes” inheritance, should both parents and one beneficiary child die, the percentage of the IRA that would have gone to the deceased child now goes to his or her beneficiaries.

Are your assets allocated for RMDs? • Ideally, interest and/or dividends from your investments should satisfy RMDs with no impact on the principal 16

Important Equation You Should Know TR = I + G TOTAL RETURN INCOME (Interest/Dividends) GROWTH (Capital Growth/Loss) 17

The Withdrawal Method: “Engineered” Retirement Income S&P 500 INVESTMENTS Investment 1: $1, 000 Annual CF: $40, 000 Market History DATE BEG. CAS S&P 500 Total Return WITHDRAWAL END CASH 1/2000 $1, 000 -9. 10% 40, 000 $871, 496 1/2001 $871, 496 -11. 89% 40, 000 $728, 734 1/2002 $728, 734 -22. 10% 40, 000 $531, 372 1/2003 $531, 372 28. 68% 40, 000 $637, 080 1/2004 $637, 080 10. 88% 40, 000 $663, 272 1/2005 $663, 272 4. 91% 40, 000 $654, 123 1/2006 $654, 123 15. 79% 40, 000 $713, 949 1/2007 $713, 949 5. 49% 40, 000 $713, 041 1/2008 $713, 041 -37. 00% 40, 000 $418, 385 1/2009 $418, 385 26. 46% 40, 000 $480, 779 1/2010 $480, 779 15. 06% 40, 000 $508, 140 1/2011 $508, 140 2. 11% 40, 000 $479, 099 1/2012 $479, 099 16. 00% 40, 000 $514, 132 *Returns calculated using month end price of the SPTR index published by CBOE https: //www. ssa. gov/ Source: www. ycharts. com 18

The Income Method: Spending the dividend only Market History DATE BEG. CAS S&P 500 Total Return DIVIDEND CASH 1/2000 $1, 000 -9. 10% 15, 000 $894, 909 1/2001 $894, 909 -11. 89% 15, 000 $773, 850 1/2002 $773, 850 -22. 10% 15, 000 $589, 209 1/2003 $589, 209 28. 68% 15, 000 $740, 704 1/2004 $740, 704 10. 88% 15, 000 $805, 132 1/2005 $805, 132 4. 91% 15, 000 $829, 031 1/2006 $829, 031 15. 79% 15, 000 $943, 663 1/2007 $943, 663 5. 49% 15, 000 $980, 458 1/2008 $980, 458 -37. 00% 15, 000 $606, 142 1/2009 $606, 142 26. 46% 15, 000 $748, 431 1/2010 $748, 431 15. 06% 15, 000 $844, 273 1/2011 $844, 273 2. 11% 15, 000 $847, 187 1/2012 $847, 187 16. 00% 15, 000 $967, 152 *Returns calculated using month end price of the SPTR index published by CBOE https: //www. ssa. gov/

The True Income Method INCOME- BASED INVESTMENTS Investment 2: *Assumption 4. 000% $3, 333. 33 Monthly Income: SIS Income Method DATE BEG. CAS SIS Return INCOME END CASH 1/2000 $1, 000 4. 00% 40, 000 $1, 000 1/2001 $1, 000 4. 00% 40, 000 $1, 000 1/2002 $1, 000 4. 00% 40, 000 $1, 000 1/2003 $1, 000 4. 00% 40, 000 $1, 000 1/2004 $1, 000 4. 00% 40, 000 $1, 000 1/2005 $1, 000 4. 00% 40, 000 $1, 000 1/2006 $1, 000 4. 00% 40, 000 $1, 000 1/2007 $1, 000 4. 00% 40, 000 $1, 000 1/2008 $1, 000 4. 00% 40, 000 $1, 000 1/2009 $1, 000 4. 00% 40, 000 $1, 000 1/2010 $1, 000 4. 00% 40, 000 $1, 000 1/2011 $1, 000 4. 00% 40, 000 $1, 000 1/2012 $1, 000 4. 00% 40, 000 $1, 000 https: //www. ssa. gov/ Source: www. ycharts. com 20

What about taking RMDs from my mutual fund? • If you are in the market while taking RMDs, you are “Reverse” Dollar-Cost Averaging*: • Defined as removing regular income from a mutual fund regularly; you end up taking out a greater % of your assets when values are reduced and less when values are improved – essentially “cannibalizing” the fund. • It’s the opposite of the well-known strategy of Dollar-Cost Averaging, where you invest equal amounts regularly, thereby getting a lower average cost-per-share over time. *Source: Analyze. Now. com

Still have questions? • How much will my RMD be? • How much additional income tax will I have to pay? • Will my RMD create or increase taxes on my Social Security? • Is my asset allocation appropriate for RMDs? • Are my beneficiaries set up for maximum tax efficiency after my death? 22

RMD Preparedness Analysis $1, 000 Special No-cost Offer Today! If you schedule your personalized RMD Preparedness Analysis now and you don’t change the date and time Investment Advisory Services offered through Sound Income Strategies, LLC, an SEC Registered Investment Advisory Firm. The Retirement Income Store, LLC and Sound Income Strategies, LLC are associated entities.