Your retirement account helped you accumulate savings for retirement, while enjoying valuable benefits during your working years. Now it will (hopefully) provide income throughout your retirement years.
Every so often, the IRS issues changes to their rules that can impact how you utilize your retirement account. This year, a new change should benefit many current and future retirees.
Once you’ve reached age 72, you are required to withdraw a certain amount from your retirement account each year. Called a required minimum distribution (RMD), these amounts are based upon actuarial tables that reflect your expected lifespan. Considering that lifespans have been gradually increasing over the years, the IRS has now updated those tables for the first time in twenty years.
The result is that required minimum distributions are now a bit smaller. The new actuarial tables for RMDs affect the following types of retirement accounts:
- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- 401(k) plans
- 403(b) plans
- 457(b) plans
- Profit sharing plans
- Other defined contribution plans
Please note that Roth IRAs are not subject to the RMD rules.
How do the new rules help retirees? Essentially, this change allows you to keep more of your money in the account if you wish, where it can continue to grow. If you’re fortunate enough to have other forms of income at age 72, including your Social Security, leaving more money in your retirement account means that it can accumulate interest for longer. This might matter to those of you with a longer expected lifespan, who are hoping your retirement account holds up for your lifetime.
For more information on calculating your RMDs, call our office as you approach age 72. We want to ensure that these amounts are calculated correctly each year, so that you can avoid any potential penalties while reaping the rewards of the new lower RMDs.