EO to Raise RMD Age ?!

[Helena]

The executive order has nothing to do with raising the required start date from 70-1/2. It's only about possibly updating the factors used in the tables.

Raising the 70-1/2 age requires new legislation.

Ironically, a similar bill has been in the Ways and Means committee since December.

https://www.congress.gov/bill/115th-congress/house-bill/4524/text

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[foxfirev5]

It's a trap. Get the old people to delay retirement withdrawals so we can tax them later at much higher rates.

 

[gauss]

It's a trap. Get the old people to delay retirement withdrawals so we can tax them later at much higher rates.

And that is likely to happen to a majority of folks out there IMHO. But not those on this board of course.

 

[marko]

My withdrawals at age 66 are already higher than my RMDs will be.
I AM interested in the plan to index Capital Gains

 

[Badger]

How many people would this actually affect given the small numbers that have actually saved enough for retirement. Then factor in the even smaller number of those who don't need the money due to other sources of income. It is those people who would choose to reduce their IRA through Roth conversions only up to their preferred tax bracket in order to prevent a higher tax bracket later. People like the small number of us. The total amount of taxes collected would now be less than what would be realized at the present RMD and also less in the future.



How will this help the government budget? What is the upside for it? Seems to me they have something up their sleeves.


Cheers!

 

[bingybear]

It's a trap. Get the old people to delay retirement withdrawals so we can tax them later at much higher rates.

If this was a delaying of RMDs (which is sounds like it isn't), I would think it was a trap as noted.

As I posted previously. since I am under age 70, I can take out any amount from my traditional IRA as I choose. Every year I take out thousands of dollars tax free because I stay under the IRA tax threshold for my total income. I would love to continue to take out tax free small amounts each year. But the government RMD at age 70 will FORCE me to take out much larger amounts every year that I don't need or want which will FORCE me to pay much higher taxes [including taxes on my SS that I don't have to pay now.]

.

If I was in this situation, I would be converting to roths instead of just pulling it out. In my case I would put off SS so I could convert more. Obviously this is situation dependent.

--- A delay in RMDs would be great extension in roth converting time.... but I don't see this as what is happening.

 

[donheff]

The executive order has nothing to do with raising the required start date from 70-1/2. It's only about possibly updating the factors used in the tables.





Raising the 70-1/2 age requires new legislation.

Thank you. I suspected that might be the case. While life expectancy at birth has gone up significantly, expectancy after reaching 70 has edged up a little but not much. Modifying the tables might change the starting percentage by a fraction. Not exactly life changing.

 

[MarieIG]

I’d like to see RMD’s eliminated. Tax it upon a non-spousal transfer after death.

I would not mind this. It could be allowed to grow, and if necessary be used to fund nursing home/ medical care late in life.

 

[MI-Roger]

I say this is all political propaganda.

I didn't recognize the mast head name of the linked news source so I clicked it and got an eyeful of news stories with blatant lies as titles.

Don't get your hopes up kids, Santa isn't real.

 

[jimbee]

I had never heard of the Western Journal, so I looked into its history. Ugh.

 

[Car-Guy]

Sounds interesting on the surface but never underestimate the ability of our leaders to $%^& things up. Personally, I'd like to see them eliminate RMD's completely. Tax it whenever it's withdrawn, even if it's by your heirs. "It's your money, use it when you want/need it".

 

[jebmke]

Life expectancy in the US has gone down the last 3 years. I doubt they will increase the RMD age much, if any.

I agree. This won't go anywhere. A lot of EOs recently are still in a drawer somewhere. When I was working, we used to call these types of directives "comets." Don't worry about them until they come around for a second lap.

 

[USGrant1962]

I say this is all political propaganda.

I didn't recognize the mast head name of the linked news source so I clicked it and got an eyeful of news stories with blatant lies as titles.

Don't get your hopes up kids, Santa isn't real.

The OP's source does look tabloid-ish but it links an article from Politico (which has its own biases) and the President did sign the EO on August 31 https://www.whitehouse.gov/briefing...thening-retirement-security-american-workers/.

So what is your point?

 

[marko]

I had never heard of the Western Journal, so I looked into its history. Ugh.

But it doesn't mean they can't report on news. They were quoting Politico.
Even the NYT gets the sports scores right.

 

[frayne]

If by chance they do raise the RMD age limit will they also raise the withdrawal age limit from 59.5 to encourage people to work longer and offset government revenue losses by raising the RMD age ?

 

[bw5972]

I knew full well the laws (created back in 1974) when I signed up and have no problem with them the way they are now.

+1

I just never get the anti RMD rhetoric. Initial RMD is what, 3.6%? At a 25% tax hit that’s less than 1% of the nest egg. We were given the tax deduction and tax deferral all those years and now it’s time to pay the piper a small bit. If you don’t "need" the money, just immediately reinvest the funds in a taxable version of whatever they came out of. Or donate to charity.

 

[Aerides]

The EO (yes it's real)- in and of itself - changes nothing. Re RMD's, it is only an order to examine the tables that determine RMD, within the next 180 days. The outcome of that examination would then maybe lead to a change proposal, which would then (maybe, maybe not) become potential input to potential new legislation. Lots of if's and maybe's, and time involved in there, check back in 2-3 years if you're hopeful.

The rest of the EO was focused more on direction to consider ways to provide for 401k arrangements for smaller businesses, which sounds like it might also be good, if it means more people can start retirement savings...ie more money invested in the market.

That said, EO's are not law, they are more flash and show, and this one is no different - it is only a directive to tell some folks to have a look at this stuff. Nothing is actually changing.

 

[NW-Bound]

Because of our progressive tax system, if one wants to minimize taxes (who doesn't?) then it is better to smooth out the income over time.

I plan to draw more money than I spend and stash the excess in Roth. That way, if I need a big pile of money in some future years, it will be there for me. If I do not spend it, leaving Roth money to my kids will be tax-free, compared to the big tax bill they will have to pay if inheriting IRA/401k money.

A single person with $20K in SS will have the following marginal tax rates depending on how much non-SS income she has.

$15,000 -> 15% marginal tax rate
$20,417 -> 18%
$24,000 -> 22.2%
$36,865 -> 40.7%
$38,706 -> 22%

A married couple with $40K in SS will have the following marginal tax rates, depending on the non-SS income.

$21,733 -> 15% marginal tax rate
$24,000 -> 18.5%
$32,459 -> 22.2%
$56,941 -> 12%
$70,000 -> 22%

See: https://www.bogleheads.org/wiki/Taxation_of_Social_Security_benefits

 

[MichaelB]

The EO (yes it's real)- in and of itself - changes nothing. Re RMD's, it is only an order to examine the tables that determine RMD, within the next 180 days. The outcome of that examination would then maybe lead to a change proposal, which would then (maybe, maybe not) become potential input to potential new legislation. Lots of if's and maybe's, and time involved in there, check back in 2-3 years if you're hopeful.

The rest of the EO was focused more on direction to consider ways to provide for 401k arrangements for smaller businesses, which sounds like it might also be good, if it means more people can start retirement savings...ie more money invested in the market.

That said, EO's are not law, they are more flash and show, and this one is no different - it is only a directive to tell some folks to have a look at this stuff. Nothing is actually changing.

Exactly. This is a directive to "please look into this", and it has 2 objectives. RMDs and small business 401(k). Here's a link to the order. https://www.whitehouse.gov/briefing...thening-retirement-security-american-workers/

 

[MarieIG]

If by chance they do raise the RMD age limit will they also raise the withdrawal age limit from 59.5 to encourage people to work longer and offset government revenue losses by raising the RMD age ?

Social Security ages were raised, and may be raised again. What you suggest could happen, but don't see it as a direct/ immediate offset. Those depending on it early need an advance warning of loosing their income. I think it would have to be phased in.

 

[jimbee]

But it doesn't mean they can't report on news. They were quoting Politico.
Even the NYT gets the sports scores right.

The site looks like a news aggregator, not a news source. I didn't see any sign of journalism.

 

[HtownRose]

Anyone who doesn't understand the problems caused by RMDs can type "tax torpedo" into their favorite search engine for an explanation.

Real life example: my Mom inherited my Dad's untouched Keogh & also maxed out her work 401k for the 10 years she worked after he died, so when she takes her RMD each year, it causes her Social Security to be taxed at a higher % than it otherwise would be.

The tax on the RMD is IMO reasonable. The extra tax on the Social Security due to the RMD is IMO not so reasonable. If Dad were still alive & their tax status was married filing jointly the tax would not be unreasonable IMO. Opinions vary.

 

[Chuckanut]

.

The income level where Social Security begins to be taxable [that as never indexed for inflation since it first took effect in the 1980s] also desperately needs to be increased.

That's one of the ways that they are using to 'tax' more of our SS benefits. And, like it or not, it works very well.

Today, I dont' see any reason for a person to have a tIRA anyway. Had Roths been available in my 20's and 30's I would have only done them. I like the simplicity of them.

 

[gayl]

Because of our progressive tax system, if one wants to minimize taxes (who doesn't?) then it is better to smooth out the income over time.
......
A single person with $20K in SS will have the following marginal tax rates depending on how much non-SS income she has.

$15,000 -> 15% marginal tax rate
$20,417 -> 18%
$24,000 -> 22.2%
$36,865 -> 40.7%
$38,706 -> 22%
.....
See: https://www.bogleheads.org/wiki/Taxation_of_Social_Security_benefits

Finally a post that can spell it out in simple English!! Thank you

 

[NW-Bound]

A note to the marginal tax table that I cited from a Boglehead article.

The "terrifying" tax rate of 40.7% for single persons only applies to your non-SS income from $36,865 to $38,706.

The excess rate of 18.7% over the ordinary 22% bracket means only $344 in extra tax, as it is levied on the difference between $38,706 and $36,865.


PS. As we are married, the best tax rate is when our SS+income is around $110K. And so, I will withdraw up to that level, even if we do not spend it all. I then put the extra in Roth. Better pay some taxes along the way than a bigger pile at the end.

See graph from the cited article.