Should the Age for Required Minimum Distributions From Retirement Accounts Be Raised?
Tax law has long required that investors in almost all retirement savings plans begin taking funds out of their plans starting at age 70 1/2 or face a prohibitive penalty of 50 percent of the amount that should have been withdrawn.
The rules exist in the first place because retirement savings plans such as 401(k) plans, individual retirement accounts and other defined-contribution retirement arrangements provide significant tax benefits to encourage people to save for their retirement. Specifically, no income tax is due on amounts contributed to these plans or on investment earnings until funds are withdrawn from the plans. The so-called "required minimum distribution" rules make sure that these plans are used to fund the owner's retirement rather than the heirs' inheritance.
How do these rules operate?
Every year after reaching age 70 1/2, the account owner must withdraw and pay tax on an amount equal to the account's ending balance for the prior year divided by a life expectancy factor from a table that the
Why is there suddenly interest in reviewing these rules?
In some sense, it's another Baby Boomer phenomenon. Many, but certainly not most, account owners are now reaching age 70 1/2 and finding that they do not need to take money out of their retirement accounts to live on. They might have funds from other sources, such as
Is it possible that an adjustment to age 75 will be made this year?
The triggering age was set by statute, so the Trump administration cannot change it administratively. Moreover,
With people living longer, does it make sense to enact more sweeping changes not only to defined-contribution plans, but also to entitlements such as
Raising the retirement age for
When
On the other hand, the increase in life expectancy is not universal. Lower-income, less educated people have generally not experienced as great of an increase as higher-income, more educated people.
In any case,
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