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Proposed Retirement Account Tax Changes: RMD Age, Caps, Incentives

Posted on: October 17th, 2016
RMD rulesThe U.S. Senate Finance Committee recently proposed increasing the age for Required Minimum Distributions (RMDs). The proposal, Retirement Improvements and Savings Enhancements (RISE) Bill, was submitted in early September 2016 and, if passed, would affect RMDs for all retirement plan accounts and provide alternative terms for account owners with balances of less than $150,000 per account. The RISE Bill also includes provisions to remove certain Roth conversions, but includes incentives to foster retirement contributions.

Possible RMD Age Changes

Currently, retirement account owners must start taking minimum distributions at age 70 ½. Penalties for failure to take an RMD are substantial. The account owner must pay 50% of the required minimum as an excise tax. In addition to this tax, the account owner remains obligated to pay applicable income tax on the RMD amount. The RISE Bill proposes to increase the RMD age to 73 by 2028. The age requirement will not apply to taxpayers whose aggregate retirement savings totals less than $150,000, which amount will adjust with inflation. 

Enactment of the terms of the RISE Bill would affect everyone who owns a retirement account, which comprises the largest investment asset for many individuals and families.  Our tax attorneys assist individuals who neglect to take RMDs. Contact our tax attorneys to learn about waiver qualifications, notifying the IRS, and managing missed RMD penalties.

Roth Conversion Removal and Contribution Limits

The RISE Bill would also do away with Roth conversions for IRAs and employer-sponsored plans. In addition, contribution caps would be placed on retirement accounts with more than $5 million in assets; these caps would affect high net worth individuals and will not be a concern for the majority of American taxpayers. The Senate Finance Committee cited 2013 statistics from the National Retirement Risk Index that reveal the median IRA account contains approximately $25,000.

Retirement Savings Incentives

In efforts to promote contributions to retirement savings accounts, the RISE Bill includes provisions that would permit employers to ‘match’ retirement contributions to 401(k)s for employees making student loan payments who are unable to make additional contributions to their retirement plan. Another provision would make the “Saver’s Credit” refundable, which would make it available to more taxpayers, and mandate that the refund be contributed directly to a tax-favored retirement plan.

If the proposed changes are approved, they will go into effect on December 31, 2016.
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