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