Once you reach age 72, you must take annual required minimum distributions (RMDs) from your traditional IRA, which the IRS taxes as ordinary income. However, some lawmakers in Washington are trying to give retirees more time before they need to start making withdrawals from their retirement accounts.
Traditional IRAs allow Americans to grow their wealth tax-deferred, but once they start taking money out, that money is taxed as income. Under current law, if you turned 72 in 2022, then you can put off taking RMDs until April 1, 2023. However, for everyone else, the deadline is Dec. 31. If you don’t have your RMD by the deadline, then the IRS imposes a 50% penalty on the amount you should have taken.
According to The Motley Fool, lawmakers are considering several proposals that could gradually increase the RMD age from 72 to 75. Under the SECURE 2.0 bill, the age would immediately increase to 73 for the 2023 tax year and remain there until going up to 74 in 2030. The next increase would be in 2033 to age 75.
The bill passed by majority vote in the House of Representatives, according to The Fool, but the Senate is looking at a different version of the proposed legislation. Under the EARN Act, the RMD age would remain 72 through 2031. But for 2032 and beyond, the RMD age would raise to 75.
Although RMDs can put a damper on the holidays, IRA expert Ed Slott told AARP that most people aren’t required to take RMDs on their traditional IRA because 80% withdraw more than the required amount. Most retirees take out a certain amount to help pay their bills, but Slott stated that the remaining 20% only take the RMD because they typically don’t need the extra income.
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