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SECURE Act’s Change of RMD Rules: Bloink & Byrnes Go Thumb to Thumb

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Robert Bloink and William H. Byrnes Robert Bloink and William H. Byrnes

In the retirement bills making their way through Congress, one proposal in the SECURE Act  would modify the required minimum distribution rules that apply to owners of traditional IRAs.

Currently, the RMD rules require that owners of traditional retirement accounts (including IRAs and 401(k)s) begin taking distributions from those accounts once the account owner reaches age 70 ½. In general, if an individual owns a traditional retirement account that was funded with pre-tax dollars, he or she is required to begin taking taxable distributions from that account beginning April 1 of the year following the year in which the owner reaches age 70 ½. For many taxpayers, this arguably requires them to begin taking retirement distributions regardless of whether they have, in fact, retired. The SECURE Act would raise the existing age threshold to age 72 for IRAs.

We asked Professors Robert Bloink and William Byrnes, who write for ALM’s Tax Facts and hold opposing political views, to share their opinions as to the impact and viability of this proposal.

Their Votes:


Their Reasons:

Below is a summary of the debate that ensued between the two professors:

Byrnes: Raising the RMD age to 72 reflects the current reality that many older Americans are facing.  Whether out of necessity or increased longevity, Americans are working later in life than ever before. There’s no reason these working Americans should be required to take retirement distributions when they haven’t retired—and, might I add, severely penalized for failing to take those unnecessary distributions. We want to encourage saving, and we want to see taxpayers with IRA balances sufficient to fund a lengthy retirement—this is a good thing.

Bloink: I disagree. Sure, Americans are working later in life, but by and large, working class Americans who continue to work past age 70 ½ are doing so in a reduced capacity so that they can supplement their Social Security and retirement account distributions. Raising the age by a year and a half really only allows the wealthy to continue to defer taxes for another year and a half—the average American who’s reached age 70 ½ needs the distributions to fund their living expenses. So while this change would seem to benefit everyone, in reality, only the well-off would actually benefit.

Byrnes: Taxpayers should be allowed to decide what to do with their own hard-earned dollars.  Once the taxpayer reaches age 70, he or she is required to begin collecting Social Security benefits even if they were previously deferred, so the reality is that many taxpayers have sufficient income even if they are working in some reduced capacity. I don’t see this as a ploy to benefit the rich at all—wealthy taxpayers aren’t going to derive significant benefit from another 1.5 years of tax-deferred growth.

Bloink: I think that’s fundamentally untrue. It’s the richest Americans who have been able to grow the largest IRA balances over the years, and the larger the balance, the greater potential for growth. Even more importantly, in my view, is the fact that “age 72” is an arbitrary number and creates a type of slippery slope situation. Americans need to look at this issue from all angles—if we’re saying that taxpayers don’t need their retirement funds until age 72, what about Social Security?

Byrnes: What about Social Security? Social Security payments are taxed entirely differently than IRA distributions and are governed by an entirely different set of rules. There’s no slippery slope argument here, just the argument that taxpayers should be able to leave their retirement funds alone until they actually need those funds to fund retirement—we’re not talking about penalizing those who choose to withdraw before age 72, taxpayers still have the option of taking the funds sooner if they need the money.

Bloink:  The slippery slope is, of course, the fact that we’re already raising the normal retirement age for Social Security purposes—the age at which taxpayers are entitled to collect full retirement benefits is increasing gradually from 66 to 67.  Why not 72? If we think that taxpayers don’t need retirement funds until age 72, and Social Security is meant to provide a retirement income supplement, it’s only a matter of time before we’re raising the Social Security normal retirement age even higher, which, of course, would result in taxpayers receiving a lower overall Social Security benefit over the course of their retirement.

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