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RMDs will be a heavy motivator for those who procrastinate


Retired people have postponed the implementation of this year’s mandatory minimum
distributions (RMDs) from their 401(k) and individual retirement accounts face a daunting task before the end of the year: withdraw assets as portfolio value declines.

The average 60/40 portfolio — a common allocation for retirees with 60% stocks and 40% bonds — fell about 25% by mid-October. RMDs are calculated based on account value. at the end of the previous year. Therefore, the amount investors will have to withdraw will appear to be inflated compared to their current account value.
“People often defer RMDs to allow their assets to continue to grow due to tax deferrals like
This year, waiting this year could mean a bigger drop in account value, said Steven A. Baxley, head of tax and financial planning at Bessemer. “You’d be better off taking the RMD earlier this year.”
Tax law requires investors to have 401(k)s, IRAs, and other tax-deferred retirements
the account begins to withdraw annually after turning 72. The required annual distribution is calculated by dividing the account’s value at the end of the previous year by the IRS published life expectancy based on current age.
Distribution is required whether you need money to live or not, and
they are subject to income tax rates in the year they are made.
Consider the potential negative impact of postponing RMDs this year, assuming
an investment account in a 60-40 portfolio. A 74-year-old investor with an IRA asset value of $500,000 at the end of 2021 will have to receive RMD 19,607 this year. If he took it on January 1, his account would have only $480,393 left. After a 25% drop this year, the value of the IRA will now be just under $360,295.

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