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The Risks of Calculating RMDs for Clients

Question:
I have one current client that is over 70 1/2 and I calculate the Required Minimum Distribution (RMD). This coming year I will have 5 more clients in that category and many more as years go on. My questions are:

Is it my responsibility as the broker to calculate the RMD?

What is my liability if my calculations are wrong?

Do any of you do your own calculations?  If so, how do you handle what is certain to be an ever increasing volume of RMDs?  How do you insure accuracy? Do recalculations?  What sort of systems are you using? 

Reply #1:
Because of the changes in the rules to calculate the MRD, it has become easier than ever to do it.  The best way to insure the MRD is done every year is to set it up as a Periodic Distribution with NFS.

This year is a little difficult because some individuals may have their MRD set to go under the old rules.  Next year everyone will use the new rules for MRDs and if the distribution is already set up, it will be converted to the new rules next year.

Ultimately it is your clients’ responsibility to make sure their MRD is correct and executed each year.

We do not want to become an MRD processing center, so again, the best way to make sure the distribution is done is set it up as a periodic distribution with dates, amounts and securities to sell automatically.

Commonwealth Retirement Group
Ext: 9992
E-mail: retirements@commonwealth.com

Reply #2:
I do calculate the RMD for my clients using Brentmark software.  Since I  provide a comprehensive financial planning service for my clients I feel  that I am better able to monitor this important aspect of my clients  financial plan.

To create a history of the annual amounts and calculations I have created an Excel spreadsheet.

If you would like more details of my process, call me at 610-524-9761.

Bob Robert O. Smith, MS, CFP, CLTC

Reply #3:
I keep the RMD planner from the Fidelity Advisor website as a desktop shortcut on my PC.

It is a very simple program.  Then I keep the calculated output document for each client as an attached file in WORD via ACT!   It makes it easy to refer back to it.  I'm sure there are other (fund) websites with similar calculators.

We track each IRA client in ACT! So we know when they are facing an RMD issue.  Plus, of course, you can use the new RMD report via the website, thought that report would be much more useful if it actually showed the RMD for the year.  No doubt though, as you infer, we (as reps) are looking at an increasingly burdensome work flow/tracking obligations as it related to client RMD's.

That is a good question, re: rep. liability in providing RMD info to clients. I hope CFN responds to that.

Thaddeus M.O'Brien, MBA
Soundview Financial Associates
762 Post Road, Darien, CT 06820
Phone: (800) 656.0098
Fax: (508) 374.2573
E-mail: tmobrien76@hotmail.com

Reply #4:
Those are good questions -- I would like answers also.  I have done RMD calculations

for several clients.  I always use a standard disclosure that they should confirm it with their accountant.  If all their funds are held w/ NFC or a mutual fund company, you can request NFC or the fund company to do it.  That should take you off the hook.

Rick Fentin, CFP
Cambridge Financial Associates
124 Mt. Auburn St., Suite 200N
Cambridge, MA 02138
Phone: (617) 520-6635
E-mail: RFentin@AOL.com

Reply #5:
1. Why would you want to take that liability?  Once you do it, you have created a continued anticipation by the client that you will continue to do it.

2. You make the wring calculations I would think that the court would most likely consider it your responsibility and you could be responsible for the 50 % penalty.

3. I let CFN do it and request the calculations for the client's file.

I own a tax practice with about 300 tax clients and I only get the figures for the CFN clients. If another tax client wants the RMD, I tell them I can only get them from investment clients through my B/D. I get a lot of ACATS that way. Unless you are 100% sure you have all the retirement accounts, why would you want to take that chance?  Way too risky for my blood.

Gary Ruchin

Reply #6:
I am in a tax office with 4500 tax clients and we calculate RMDs for our financial services and non-financial services clients.  Our goal is to consolidate IRAs and place them into automatic RMD programs with the mutual fund groups so that they calculate and distribute the RMD each year as a systematic withdrawal program.  All fund groups, banks, etc. send minimum distribution notices to 70 1/2 year olds.

Ask the client to confirm the calculation with their tax advisor who should be involved anyway with respect to tax withholding.  Sometime RMD distributions can affect Social Security, and the client may be doing quarterly estimated tax payments, etc.

Roberta Nestor

 
* The foregoing is for broker/agent use only, and is intended solely for informational purposes. Nothing contained herein should be construed as legal or tax advice, and should not be relied upon for such. Legal and tax advice should only be obtained from your attorney or qualified tax professional.

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