New retirement rules in legislation signed by President Biden in December feature some changes to mandatory withdrawals from retirement accounts that score big with wealthy seniors.
The new law increases the age you must start withdrawing required minimum distributions, or RMDs, from individual retirement accounts (IRAs), 401(k) and 403(b) plans, to 73 in this year, up from 72. That claim will turn 75 in 2033.
Another provision removes RMD from Roth accounts in employer 401(k) plans starting in 2024.
“For wealthy clients, this is good news because they usually don’t need an RMD,” said Eileen O’Connor, certified financial planner and co-founder of RMD. Hemington Property Management, told Yahoo Finance. “And because these distributions are all taxable income, [that] could push them into a higher tax bracket.”
But for others, increasing RMDs doesn’t do much for their financial security in retirement.
The amount you are required to withdraw each year is based on IRS calculations determined by your account value and life expectancy.
For those who don’t depend on the money deposited in their retirement accounts to pay for their living expenses, forced withdrawals from tax-protected accounts like IRAs and 401(k) plans each year , starting from a government-mandated amount of age, not financially profitable.
For retirees with multiple other sources of income to fund their lives, the opportunity to continue accumulating tax-deferred savings can be an important factor in their future financial security. them and even to their heirs.
Here’s why: Many Americans could find themselves living three decades after retirement. The average retirement age for retirees is now 61, up from 57 in 1999, according to one study. Gallup poll 2022And the average projected age of non-retirees today is 66 compared with 60 in 1995. The longer and more people can keep their money invested, the better the chance they won’t live long. than.
However, the truth is that most workers need whatever money they have saved sooner rather than later.
“That’s probably about a third of households that have amassed a substantial amount of money to use in retirement,” said Mark Miller, a retirement expert and author of the new book “Restarting the Fund.” retirement: sound financial strategies to get back on track.” previously told Yahoo Finance.
That leaves two-thirds of those without.
In fact, a worrying percentage are workers using their retirement savings before retirement, according to the latest Transamerica results. Retirement Survey of the Workers. More than 1 in 3 workers (37%) have taken out a loan, early withdrawal, and/or hardship withdrawal from their 401(k) or similar plan or IRA, which can lead to costly consequences.
And for those who already use their RMD, only a fraction withdraw the minimum amount.
Slott said: “According to statistics from the Ministry of Finance, 8 out of 10 people who are subject to RMD have taken more than the minimum because they need money.
The harsh reality is that “there is a very small percentage of people who actually benefit from the change” for RMD, says Alicia Munnell, director of Center for Retirement Studies at Boston University, told Yahoo Finance. And most of those people are people who can already afford their retirement, not those who are struggling in their golden years.
“I think it’s a terrible provision because it’s designed only to make rich people richer,” Munnell said. “Who can afford to wait? Only people with a lot of money.”
Kerry is a Senior Correspondent and Columnist at Yahoo Finance. Follow her on Twitter @kerryhannon.
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