Azza Sokkar writes
As we know successful retirement savers use a variety of different methods to set money aside later on. So, millions of Americans use tax-deferred accounts like IRAs and 401(k)s to build up a nest egg for their golden years. Traditional IRAs and 401(k)s offer a trade-off: reductions in tax now in exchange for agreeing to pay taxes on withdrawals in retirement. Moreover, under current law, retirees can’t just leave their money in their retirement accounts forever, as rules require you to take required minimum distributions once you reach a certain age or else pay a huge penalty.
Nevertheless, President Trump is expected to issue an executive order today that could lead to a future change in these rules. That would potentially loosen the requirements for required minimum distributions, granting retirees more flexibility in deciding when and how much of their nest egg they take out.
Having required minimum distribution rules is to put a limit on the extent to which retirement savers can reap the tax benefits that IRAs and 401(k)s and offer. In order to do so, the rules require accountholders to calculate certain amounts that they have to take out each year, regardless of whether you actually need the money to make ends meet in retirement.
Particularly, the RMD rules state that you need to start taking withdrawals from traditional IRAs and 401(k)s during the year that you turn 70 1/2 years old. That’s an odd age, but what it means is that if you were 70 in or before June 2018, then you’ll need to take an RMD this year. If your 70th birthday wasn’t until July or later, then you won’t have to worry about taking a withdrawal until 2019 under the current rules. If 2018 is the year that you reach 70 1/2, there’s a special extension that gives you until April 1, 2019, to take your RMD. Older retirees must take their distributions by Dec. 31 of the current year in order to avoid penalties.
