When a full service broker no longer wants your business

Dear Liz: Can a brokerage firm drop a 26-year-old client because their account drops below $200,000? I was told that they normally don’t have accounts under this limit. Of course, my balance is lower because of the market drop. This policy does not seem very ethical. Ten years ago I had another account with them and it fell below $100,000 and nothing was said about it.

To respond: Your full-service brokerage may have just done you a favor. After charging you high fees for years, it has freed you to find an alternative that will cost you much less.

Discount brokers such as Vanguard, Fidelity, Charles Schwab and T. Rowe Price will welcome your business. You can also explore robo-advisory options that manage your money for a fraction of what you’re currently paying.

Retirement account allocation rules

Dear Liz: My husband is 71 and retired. We have started withdrawing from one of his retirement funds, but I don’t know if there is a minimum amount that must be withdrawn per year. We have a few pension funds in different places. Should we withdraw from each or just a minimum per year, no matter where?

To respond: The required minimum distributions from most retirement accounts must generally begin when someone turns 72. Withdrawals must be made by December 31 each year, but your first can be delayed until April 1. If your husband turns 72 next year, for example, then the first withdrawal would not be due until April 1, 2024. Your husband would have to make a second distribution by December 31, 2024.

Required minimum distributions are calculated using the tables in IRS Publication 590-B, Distributions From Individual Retirement Arrangements (IRAs). IRA owners must calculate the minimum withdrawal separately for each IRA they own, but they are allowed to withdraw the full amount from one or more of the IRAs. People who have 403(b) accounts are also allowed to withdraw the total amount of one or more 403(b) contracts after calculating the amount separately for each.

The rules are different for other types of pension plans. People who have 401(k) and 457(b) plans must calculate and make minimum withdrawals separately from each of those plan accounts. No distribution is required for Roth IRAs during the lifetime of the owner.

Your brokerage can usually help you calculate the required minimum distributions, or you can talk to a tax professional. A tax professional or fee-based financial planner can also help you decide whether it makes sense to consolidate your accounts. At your stage in life, you could probably benefit from simplifying your finances and having fewer accounts to monitor.

Leave IRAs to Charity

Dear Liz: In responding to the reader who asked how to plan for the tax consequences of leaving a traditional IRA to a family member, I wish you had mentioned the tax benefit of naming a charity as the beneficiary of a traditional IRA. There is no tax on the distribution of a traditional IRA to a charity. The consequence is that the income is never taxed (front or back) and a charity benefits from the generosity of the IRA owner.

To respond: The reader was primarily concerned about the passing of assets to children and grandchildren after the Secure Act of 2019 eliminated “expandable IRAs” for most non-spouse beneficiaries. One way to do this while also benefiting a charity is the charitable remainder trust that was mentioned in the column. These trusts require expenses to set up and are not a good option if the IRA owner is not charitable.

However, if someone’s main purpose is to benefit the charity, qualified charitable distributions or outright bequests are certainly an option. Qualifying charitable distributions, which can begin at age 70.5, allow someone to donate the required minimum distribution amounts directly to charity; the distribution is not considered taxable income for the donor.

Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions can be sent to him at 3940 Laurel Canyon, #238, Studio City, CA 91604, or by using the “Contact” form on asklizweston.com.