Executive, Legislative Branches Considering RMD Changes

On   Sep 27, 2018

Changes in required minimum distributions (RMDs) are among the focal points of current proposals in the executive and legislative branches of the U.S. government.

One possible result of these proposed changes is that university professionals who are not still working may be able to delay taking RMDs past age 70 ½, the current deadline when RMDs must begin. This could provide a tax benefit for professors, administrators and physicians who don’t want or need to withdraw from their university retirement accounts. RMDs from tax-deferred accounts must pay income tax.

Most university professionals who are in employer-sponsored 401(k), profit-sharing, 403(b), and 457 retirement plans can delay RMDs past age 70 ½ if they are still working on staff. (However, anyone over age 70 ½ who retires mid-year or on or before December 31 would be required to take an RMD in that year.) Professors who have 403(b) funds in a plan at a university where they no longer work must take RMDs from those plans at age 70 ½. (Always consult a qualified tax adviser when you have questions about your RMDs.)

On August 31, President Trump signed an executive order instructing the Treasury Department to review and possibly increase the required age on which RMDs from 401(k)s and IRAs must begin. Additionally, a U.S. Senate bill introduced earlier this year called the Retirement Enhancement and Savings Act (RESA) of 2018 reportedly has bipartisan support, which is rare in this current political climate.

Forbes reports that the executive order has some significant overlap with RESA. Both RESA and the Trump executive order include proposals beyond RMD changes, including enhancing the ability of small businesses to offer retirement plans.

The executive order “seeks to implement as much of the (Retirement Enhancement and Savings Act) as possible without congressional action,” Andy Friedman, principal at TheWashingtonUpdate.com, told ThinkAdvisor. “Because only Congress has the power to change the tax and benefits law itself, the president’s ability to make changes through executive order is limited.”

The Trump executive order gives Treasury Secretary Steven Mnuchin six months to provide a recommendation on possible changes to the RMD rules, so it’s reasonable to expect a determination by the first quarter of 2019. RESA is sponsored by Utah Republican Senator Orrin Hatch, who will retire from the Senate in January 2019. Chances of RESA’s passage are increased because of Hatch’s sponsorship of the bill.

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