If you’re over 70 ½, you have been forced to take an annual amount out of your IRA and pay income taxes on it. The amount of withdrawal is based on the value of your IRA at the end of the previous calendar year and your age in the current year. If you fail to make this withdrawal, the tax penalty for doing so is 50% of the amount you failed to take out. Yes, 50%!
At the end of 2019, Congress passed, and the President signed into law, a bill known as the Setting Every Community Up for Retirement Enhancement act, or the SECURE act (Who thinks this stuff up?). There are two provisions that I want to point out here. First, for anyone who hasn’t reached age 70 ½ by December 31, 2019, the age for taking required minimum distributions from your IRA has been raised to age 72. And second, the new law requires non-spousal beneficiaries of IRA’s to withdraw the money and pay the taxes within 10 years of the IRA owner.
Rather than just raising the age to begin taking RMD’s, I wish they would have eliminated the RMD altogether. If they are wanting to enhance retirement, why not let retirees decide when and how much of their retirement accounts they want to take out? Let’s face it, a lot of people haven’t saved enough for their retirement so they are working later in life, into their 70’s. Rather than having to take out a portion of retirement savings, and pay between 15% and 20% or more in taxes on it while they are still working, doesn’t it make more sense to let that retirement money sit there and grow until they can’t or don’t want to work anymore?
The RMD was put in place to make sure the government eventually got their taxes on the tax-saving contributions workers made over their lifetime and on the tax-deferred earnings. With the other new provision in this bill that I mentioned, once mom and dad are both gone, the beneficiaries of any money left over in the IRA will have to take the money out and pay the taxes on it within 10 years. So, Uncle Sam will get his money eventually.
It seems to me that since company pensions have died off, and Social Security is not projected to last much longer, the responsibility of savings for one’s later years has been shifted back on the individual. It seems only fair that the individual should be able to determine when and how much they take out of their retirement savings.
Eliminate the RMD!
These are the opinions of Mike Berry and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.
Mike Berry is a Registered Representative offering securities through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Legacy Wealth Management, LLC and Cambridge are not affiliated. Cambridge does not offer tax advice.
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