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If You’re Retired or Soon to Be, Take Note of This Change

If You’re Retired or Soon to Be, Take Note of This Change

June 14, 2022

For several decades, you have focused on preparing for retirement by accumulating a nest egg in your retirement account. And you also enjoyed valuable tax benefits for doing so during that time.

But once you enter retirement, you will need to switch your strategy from saving to taking withdrawals. And while doing so, you must navigate complicated IRS rules, so that you avoid the potential for certain penalties.

Many retirees put off taking withdrawals for as long as possible, in order to preserve their retirement fund and allow them to grow. But at age 72, you must begin taking required minimum distributions (RMDs) or else face a penalty. The amounts of your annual RMDs are determined by actuarial tables, which are based upon your expected lifespan. And since lifespans tend to change (at least according to public data) the IRS occasionally changes those tables and therefore your RMDs.

And so, as RMDs change, so must your withdrawal strategy. The most recent changes allow for slightly smaller RMDs, and affect the following types of accounts:

  • Traditional IRAs
  • SEP IRAs
  • 401(k) plans
  • 403(b) plans
  • 457(b) plans
  • Profit sharing plans
  • Other defined contribution plans

Do take note that Roth IRAs are not subject to RMD rules.

Why does this matter? First, it is always wise to take the correct RMD each year, because taking the wrong amount can trigger potential penalties. Second, the fact that RMDs are now a bit smaller can actually help you. By leaving more money in your retirement account, you can stretch its life a bit more as those funds hopefully continue to grow. This is good news for those who worry about outliving their money.

We should schedule meetings each year during retirement, so that you stay on top of your withdrawal strategy and other aspects of your long-term financial plan. Let’s schedule a meeting soon, so that we can discuss how these changes to RMD amounts might impact your situation.