Who Benefits From Raising the RMD Age Under Secure Act 2.0?

This and increasing catch-up contributions, another EARN Act provision, would primarily help the wealthy, critics say.

The Senate’s retirement-related legislative proposal, the Enhancing American Retirement Now (EARN) Act, calls for raising the age at which required minimum distributions (RMDs) start from 72 to 75. The proposal is expected to become part of the Senate’s ”Secure Act 2.0″ legislation.

The increased age limit would essentially allow Americans to take advantage of three additional years of tax-free growth within traditional retirement accounts, such as IRAs and 401(k)s.

The EARN legislation would also allow taxpayers to contribute an additional $10,000 per year to these accounts between the ages of 60 and 63. Critics of these proposals claim that the changes would only benefit wealthy Americans, while the law largely ignores the needs of working-class savers.

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about whether the latest Senate proposal to raise the RMD age unfairly benefits wealthy taxpayers.

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

Bloink: The latest proposal absolutely favors wealthy Americans. Raising the age when RMDs must begin will provide a benefit to only the wealthiest Americans. Most average taxpayers must start emptying their accounts well before their required beginning date.

The EARN Act would also allow taxpayers to deposit an additional $10,000 into retirement accounts between ages 60 and 63. Again, only the wealthiest Americans will actually be able to take advantage of these new rules.

Byrnes: We all know that Americans are working longer than ever, meaning that it makes perfect sense that we would continue to increase the required beginning date age. These provisions make no reference to tax brackets or age — meaning that Americans of all walks of life are free to take advantage.

Bloink: It’s important to remember that the EARN Act doesn’t pay for these hidden “tax breaks” with tax hikes in other areas. It merely allows wealthy taxpayers to opt for Roth IRAs in an attempt to circumvent the revenue-neutrality issue that could prevent the Act from becoming law on procedural grounds. In the end, the legislation merely kicks the can down the road for future generations to deal with an out-of-control deficit.

Byrnes: These new proposals are merely reflective of the fact that every American’s circumstances can change rapidly over time. Giving Americans the opportunity to increase their retirement account funding later in life simply gives many people an opportunity to catch up — and allowing an extra three years of tax deferral similarly allows Americans whose success didn’t happen until later in life a chance to fund a full retirement.

Bloink: The bottom line is that these EARN Act provisions provide a disproportionate benefit to wealthy taxpayers without any corresponding benefit for lower-income Americans. Wealthy taxpayers are already the most likely to maximize their retirement contributions and leave their funds to grow on a tax-deferred basis for the longest period of time.

We need to concentrate our efforts on providing benefits that would encourage lower and middle-income Americans to take advantage of these valuable retirement account benefits, rather than focusing on the wealthy.

Byrnes: This law would enhance the benefits of a traditional retirement account and give more Americans a chance to save for retirement—regardless of income level. We can’t assume that only higher-income taxpayers will be able to take advantage of these new rules. In fact, I’d anticipate that these new rules would provide a significant benefit to our small business owners who are unable to fully fund retirement accounts during the early years after opening a business, when revenue must be diverted to help the business grow.

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(Image: Chris Nicholls/ALM)

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