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Retirement Planning > Spending in Retirement > Required Minimum Distributions

Ed Slott: Bill Waiving RMDs for 2022 Is Doomed

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A bill introduced this summer that would waive for 2022 the required minimum distribution rules for defined contribution or individual retirement plans has little chance of making it into the final Secure Act 2.0 package, according to Ed Slott of Ed Slott & Co.

Rep. Warren Davidson, R-Ohio, introduced the bill in July, and it has been referred to the House Ways and Means Committee.

Under current law, participants in tax-exempt retirement plans must begin taking distributions at the required beginning date (i.e., April 1 or the calendar year following the later of the calendar year in which the employee turns 72, or the calendar year in which the employee retires).

Ed Slott of Ed Slott & Co. told ThinkAdvisor on Thursday that Davidson’s bill is unlikely to gain traction this year. “Plus, it’s way too late in the year to waive RMDs because it would create more problems than solutions. Advisors would be spending more time on the phone with clients who already took their RMDs — asking, ‘What do I do now?”

While Davidson’s bill, H.R. 8331, provides for a temporary waiver for RMDs, the bills that are expected to make up the Secure 2.0 package raise the RMD age from 72 to 75. Slott doesn’t see an RMD waiver making it into the final Secure Act 2.0 package.

Under the House-passed Securing a Strong Retirement Act of 2022, as well as the Senate’s Enhancing American Retirement Now (EARN) Act and the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg, or Rise & Shine, Act, the age for taking RMDs from IRAs would increase.

The House bill would delay the first RMD year to age 73 from 72 beginning in 2023, 74 in 2030 and 75 in 2033. The Senate EARN bill would change the first RMD year to age 75, effective in 2032.

Slott reiterated his view that “waiving RMDs is useless, but it sounds great and sells well, and maybe throwing this out during election season sounds like Congress is helping retirees. They are not.”

In fact, he continued, “waiving 2022 RMDs now so late in the year will cause havoc for those who have already taken them. This happened in 2020 in response to the pandemic when RMDs were waived even much earlier in the year, and still, IRS had to create lots of tax rules allowing RMDs already taken to be returned by certain deadlines which were extended because many people were still not aware of the waiver.”

The RMD waiver, Slott continued, “ended up creating more problems than solutions, especially for advisors who had to learn all these rules and spend their time explaining all of this to clients. What a mess that was! Waiving RMDs now, this late in the game for 2022 would be a nightmare.”

Said Slott: “Congress’ ‘go-to’ plan for any economic problem or disaster seems to be waving RMDs.”

Waiving RMDs “mostly helps those who don’t need the help. When the IRS proposed changing the life expectancy tables used to calculate RMDs (effective in 2022), it estimated that only about 20% of those subject to RMDs take the minimum because they must. This group doesn’t need the RMD funds, but waiving them for this group is still of limited long-term value (other  than maybe allowing these funds to be converted to Roth IRAs, since RMDs otherwise cannot be converted). Waiving RMDs only compounds the eventual tax problem, resulting in larger taxable RMDs later on and for beneficiaries who inherit and must empty the account within 10 years after death.”

If Congress wants to do something constructive, Slott said, “they should eliminate lifetime RMDs altogether and fix the 10-year rule problem in the SECURE Act where beneficiaries who inherit from someone who dies after they begin RMDs are subject to RMDs for years 1-9 of the 10-year term.”


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