IRAs

New Law Could Change Rules for IRA Withdrawals

Under the proposed legislation, you would have more time to take IRA distributions.

If you have money in a traditional IRA or 401(k), you probably already know that eventually you’ll have to take that money out and pay taxes on it. But the rules for taking required minimum distributions (RMDs) have always been confusing, especially because they require you to start tapping your accounts based on your half birthday—age 70½. On May 23, the House of Representatives passed a bill that would simplify the rules and give your savings a little more time to grow tax-deferred. The Senate is considering a similar bill. It hadn’t voted at press time but is expected to vote on it soon.

The SECURE Act (Setting Every Community Up for Retirement Enhancement) would raise the RMD age to 72 and allow people of any age who have earned income to contribute to traditional IRAs. The changes would be particularly helpful for the growing number of people who are working into their seventies, says Ed Slott, founder of IRAHelp.com.

Under current law, you can’t contribute to a traditional IRA after age 70½. You can contribute to a Roth at any age, as long as you have earned income from a job, but your adjusted gross income must be less than $122,000 if you’re single or $193,000 if you’re married filing jointly to make the full contribution in 2019. The proposed change would allow older workers who earn too much to contribute to a Roth to put money in a traditional IRA, which they could then convert to a Roth, Slott says. If that is their only traditional IRA, they would only owe taxes on any earnings when they convert, and the money would grow tax-free after that. (The tax situation is more complicated if you own additional traditional IRAs.)

K7-AHEAD.a.indd

Getty Images

Retirees may be less enthused about a provision in the bill that would generally require children and other non-spouse beneficiaries to withdraw money from an inherited IRA within 10 years. Now, those beneficiaries can spread withdrawals over their life expectancy and stretch out taxes on the money (spouses can roll an inherited IRA into their own IRA and delay withdrawals until they take RMDs).

The House bill passed with bipartisan support. If the bill passes in the Senate, it will be the first major legislation affecting retirement plans in more than a decade.

Most of the SECURE Act’s provisions are “common sense, widely supported changes,” says Alan Glickstein, senior retirement consultant with benefits consultant Willis Towers Watson.

Most Popular

Where's My Refund? How to Track Your Tax Refund Status
tax refunds

Where's My Refund? How to Track Your Tax Refund Status

If you're waiting for your tax refund, the IRS has an online tool that lets you track the status of your payment.
March 2, 2021
Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer
Coronavirus and Your Money

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer

The IRS has an online tool that lets you track the status of your stimulus checks.
February 19, 2021
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021

Recommended

Claim These "Above-the-Line" Deductions on Your Tax Return (Even If You Don't Itemize)
Tax Breaks

Claim These "Above-the-Line" Deductions on Your Tax Return (Even If You Don't Itemize)

If, like most people, you claim the standard deduction instead of itemized deductions on your return, there are still many other tax deductions availa…
March 5, 2021
The Cost of Retirement Has Tripled! But a New Way of Planning Can Help
retirement planning

The Cost of Retirement Has Tripled! But a New Way of Planning Can Help

With today’s low interest rates and paltry dividends, the old way of saving for your retirement and living off your dividends and income to preserve y…
March 5, 2021
The Basics of Required Minimum Distributions: 12 Things You Must Know About RMDs
Financial Planning

The Basics of Required Minimum Distributions: 12 Things You Must Know About RMDs

Retirement savers who are 72 must start withdrawing funds from tax-advantaged retirement accounts. Here’s what you need to know about required minimum…
March 4, 2021
A COVID Storm Hits Senior Living
Coronavirus and Your Money

A COVID Storm Hits Senior Living

The pandemic has created significant challenges for all types of senior living communities. Because of that, it's more important than ever to review a…
March 3, 2021