November 14, 2019

RMD Required Minimum Distributions

REQUIRED MINIMUM DISTRIBUTIONS from retirement plans:   Enacted on September 2, 1974 as part of ERISA (Employee Retirement Income Security Act), this law, RMD Required Minimum Distributions, and later amendments and regulations require that any taxpayer upon reaching the April 1 following their 70 ½ birthday is required to start withdrawing a minimum amount from certain qualified retirement accounts, IRA’s, etc.  The minimum amount of the withdrawal is determined by the taxpayers age each year using IRS provided tables.  The penalty for not taking the required distributions is 50%!  Do you know of any tax law with that high a penalty other than payroll tax trust funds?  In the case of payroll tax trust funds, the IRS figures you took their (IRS’s) money (employee withholding) and can charge you an excise tax or civil penalty of 100%.  This penalty also applies to board members.

In addition, at this point you may no longer make contributions to an individual retirement account or other times of plans, even though you are still employed.  However if you are still working at an organization where you are still part of their retirement plan (401(k), etc.) you are not required to retire or start taking required minimum distributions unless you own more than 5% of the company sponsoring the plan.

The SECURE Act, Setting Every Community up for Retirement Enhancement is currently stalled in the Senate.  It would make it easier for small businesses to set up retirement plans and also would extend the mandatory time for RMD’s to age 72.  I believe the Senate should pass this bill.  Some people believe that it only helps the rich who do not need the money.  It is true that the SECURE Act helps anyone who does not need to take retirement distributions.  What is being claimed is that this life circumstance only applies to the “rich”.  The fact that is being overlooked is that people are living longer and longer and, thanks partly to the demise of defined benefit plans, they only have Social Security, what is in their 401(k) plans, savings and possibly the equity in their homes to assure themselves a comfortable life style until they die.  As is usual with most tax related laws they attempt to avoid rewarding 1% of the population at the detriment of the other 99% and so it is true with this tax bill.  Those arguing against the raising of the age at which RMDs are require point out that it will cost the Government tax revenues.  That is rubbish.  It merely delays the revenue.  As all those familiar with the subject know the taxation of our previously untaxed retirement funds will be taxed when you die and will be taxed twice if you are lucky enough to have a very large estate.

According to a Forbes magazine article in June 2019 by John Wasik, the number of retirement age people still working has doubled since 1985.  “Some 20% of Americans 65 or older are either working or looking for work”

Some people are working out of necessity and other are working because they want to work.  It many respects it is a mentally healthy approach to aging.  It some respects it probably lowers national healthcare costs for seniors by promoting a healthier and energetic lifestyle in their remaining years instead of becoming a “couch potato”.

Why should there be RMD Required Minimum Distribution?

In my opinion requiring retirees to go into their IRA savings using mandatory figures serves no public or social purpose.   If the argument is that the IRS wants back the tax money that was saved as soon as possible, then tell me that by taxing these funds you can now balance the budget.  Finally, it is a deterrent to people saving.  Is not “under saving” one of our chronic complaints about our citizens? Seniors should not have to adhere to RMD Required Minimum Distributions

 Nowadays we are living longer.  In an article in Sarasota Magazine in 2015 noted that Sarasota is #1 in the state for having citizens over 85 and 2nd for having citizens over 75.  If the retiree can continue working, they are contributing to the Social Security fund even though most likely it will not increase their monthly social security once they are past 70 ½.  Seniors are reliable workers in a growing economy offering a lifetime of experience to their employers and fellow employees.

The Federal State and Local government should be passing laws encouraging seniors to work not deterring them.