Sumary of 7 Ways The New Tax Bill Could Impact Retirement Planning:
- While it is mostly aimed at increasing taxes to pay for other social policies and government infrastructure initiatives, there are a number of provisions that would change retirement planning.
- It’s not geared at expanding retirement access or enhancing retirement security of Americans as other bills in front of congress, like the SECURE Act 2.0. While congress is looking at adding retirement enhancements, the proposed tax bill released this week is geared towards tax revenue and removing perceived “excess” benefits.
- MORE FOR YOU The new provision would limit any further contributions to an individual’s IRA if the total value of the individual’s IRA and defined contribution accounts exceed $10 million at the end of the prior year, and that person earns more than $400,000 for single and $450,000 for married filing jointly.
- Roth IRAs already limit contributions based on income so there would be no change with Roth, just with traditional IRAs.
- 138302 Today, Required Minimum Distributions (RMDs) generally kick in on retirement accounts after age 72 and is based on an IRS provided uniform lifetime distribution number (essentially a life expectancy number) and the value of the account at the end of the prior year.
- This new provision would apply a new (and much larger) RMD for those with larger accounts and significant taxable income.
- So if you had $16 million, you would have a $3 million RMD since 50 percent of the $6 million over $10 million is $3 million.
- Further expanding on this rule, if the aggregate amount exceeds $20 million, Roth IRAs and Roth accounts, like in a 401(k), would have to be distributed first until the balance fell below $20 million or the Roth accounts are depleted.