Retirees' Mandatory IRA Withdrawals Would Shrink Under Treasury Plan

Retirees could take smaller mandatory withdrawals from their tax-advantaged accounts under a new Treasury Department proposal designed to adjust for rising life expectancy. If finalized, the rules would take effect starting in 2021, reducing tax collections and letting more money accumulate in tax-preferred accounts. The change amounts to a tax cut for retirees who don’t need to tap their savings for living expenses.

According to an example in the regulations, a 70-year-old with a $250,000 retirement account would be required to withdraw $8,591 instead of $9,124. A 75-year-old with a $500,000 balance could reduce that year’s withdrawals—and thus taxable income—by about $1,500, according to Ed Slott, an accountant in Rockville Centre, N.Y., who specializes in retirement accounts.

U.S. law lets people put money in tax-advantaged vehicles such as 401(k) plans through employers and individual retirement accounts. In traditional plans, pretax money goes in and withdrawals are taxed at ordinary income-tax rates. The tax law requires people to start withdrawing money starting at age 70½. A government life-expectancy table determines the annual minimum withdrawals. Thursday’s proposed update would amend that table for the first time since 2002, reducing those required annual withdrawals.

The retirement income rules could change again: Congress is considering a bill to increase the age at which mandatory withdrawals start from 70½ to 72. That bill also would tighten the rules on inherited retirement accounts, requiring some heirs to take taxable withdrawals over a shorter period than under current law.

More..

https://www.wsj.com/articles/retirees-mandatory-ira-withdrawals-would-shrink-under-treasury-plan-11573154451 (paid subscription)