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What You Need to Know About Trump’s Proposed Changes to Required Minimum Distributions

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Required Minimum Distributions

Early retirement planning is the smart way to make your retired life better. Retirement savings are extremely important. Millions of Americans use IRAs and 401(k)s to save up for their golden years. These tax-deferred accounts provide a tax break now.  The agreement is that they’ll pay taxes on it in retirement. Once you begin to withdraw from your IRA or 401(k), there is a required minimum distribution.  You must adhere to the distribution to avoid paying a hefty penalty.

For years, people have looked at these laws as unfair. After all, many people save their entire lives to be able to retire comfortably just to be hit with fines. However, President Trump has signed an executive order that will lead to a change in these rules. The new change is mainly loosening the requirements for minimum distributions.

About Required Minimum Distributions

Required minimum distributions (RMD) are put into place to limit the tax benefits retirement savers are able to receive. RMD rules state you must begin taking withdrawals from retirement account the year you turn 70 1/2. Account holders must calculate the amount they have to take out each year, regardless of whether they need it or not. For many people, this has increased the likelihood of running out of money during retirement.

President Trump Calls for Changes

Last week the president signed an executive order calling for the Department of Labor and Department of Treasury to consider two things. First, he wants to raise the age when people are required to start taking the RMD. Second, Trump would like to find a way to make it easier for small businesses to offer retirement plans for employees.

He has given the Department of Treasury six months to consider pushing back the age because many Americans are outliving their retirement. The current average life expectancy in the U.S. is 78 1/2. Additionally, he has given the Labor Department six months to consider easing regulations that would allow small businesses to offer retirement plans. This would give the opportunity to save for retirement to more than 42 million employees in the U.S.

Financial advisors helping retirees are hopeful that the order will lead to more relaxed RMD rules or, even better, the removal of the rules altogether. However, even if the executive order pans out, it could take years for the rules to change. It also isn’t clear whether a simple rule change can be done without congressional approval.

Either way, if you have an IRA or 401(k) that you don’t need to tap into right away, these changes could make a huge difference in your financial plan for retirement. For many, it would mean having more security than ever.

Readers, what do you think about President Trump’s proposal?

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Comments

  1. Trump is a crazy man – he’s insane and bringing us down. This will never happen, the govbment likes their taxes too much.

    Reply

  2. ” Account holders must calculate the amount they have to take out each year, regardless of whether they need it or not. For many people, this has increased the likelihood of running out of money during retirement.”

    No, it hasn’t. There is no rule requiring anyone to spend their money, only a rule about withdrawing it from tax-advantaged accounts. The money does not cease to exist merely because it is no longer in your tax-advantaged account.

    Reply

  3. By withdrawing money not needed you have to pay taxes. So now the amount that can grow is now a smaller amount. And the growth of the amount not used in the mandatory distribution is taxed also. So the money does disappear after withdrawal because of taxes. I propose that once our elders reach the age of mandatory distribution that they are exempt from all taxes, period. Why do we want to abuse by taxation the ones that have sacrificed there whole life to making life better for the next generation.

    Reply

    • I’m personally in favor of having more control over my own money. A later mandatory age for RMD could be helpful as could cutting the % requirement of distribution each year. The older we get, the higher percent we have to withdraw, which if nothing else is stressful to consider outliving your money. John makes the point that those monies can continue to grow, but are taxed both on withdrawal and on growth outside of the protected investments. Some have financial instruments that could not be matched today.

      Reply

    • all monies in this “tax advantaged ” account was deposited over many years pretax and hopefully appreciated tax free so it has had the advantage of every dollar earned has compounded yearly, markets willing pretty decent for most people who were smart enough and fortunate to have a pension or pretax fund to benifit from

      Reply

  4. The RMD pushes Seniors into a higher bracket regardless of whether or not they need to tap these funds. Some who saved hard expect to live to over 90 or more. It is expected that one of a couple will live to be over 90. Once you get over 90 the RMD increases to 9 to 15%. It is unlikely that Seniors with risk averse assets would have their savings last long with these withdrawal rates.

    Reply

  5. This is a great change in the Tax Laws. After being retired for 5 years , I have gone back to work at a really fun job. This adding to my income as I do not need or want to draw out of my savings next year. That will add a tax burden that is very unfair as it is my money and I should be able to do what I want with it, If you are one of the people that listened to ” you need to save for a rainy day” and did it, you should not be penalized for doing so. The next thing they need to fix is that once you start drawing Social Security and continue to work, you should pay no further Social Security Taxes. If you don’t see the benefits of these changes you are probably young or not very bright, or both,

    Reply

  6. If “Trump is a crazy man”, as was previously suggested, then why did Obama recommend this idea first?

    Also, Obama wanted turn it into a total government “giveaway” by eliminating RMDs for folks with less than $100,000 in IRA/401k savings.

    Now, who’s the “crazy man”?

    Reply

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