The SECURE Act, which became law in 2019, moved the RMD age to 72. In addition, the RMD tables were adjusted for 2022 to reflect increased longevity, and now have longer life expectancies for most ages.
This will not affect all people – for some, their annual IRA withdrawal is already more than the RMD requirement. However, those who are only taking the minimum distribution requirement may see less taxable income.
It’s important to know that the new RMD age of 72 and adjusted life expectancy tables may push more taxable income into the future. That could be helpful for some but others could ultimately move into higher tax brackets, paying for higher Medicare premiums and new or increased exposure to the Net Investment Income Tax.
Other tax issues could arise as well. The SECURE Act also modified the “stretch” provisions. The modifications can mean that children who inherit a large IRA may need to pay income taxes sooner on distributions from the IRA. The ability to “stretch” the IRA balance over a beneficiary’s life expectancy has been eliminated for many.
These recent changes might appear positive but could actually raise income taxes and leave the retiree with less in the end. All of this means it is more important for many people – not just the mega-rich – to have a tax-sensitive distribution strategy as they move into retirement.
Here are some things to keep in mind.