Lower Taxes on Your RMDS

Congress has given retirees more time to take required distributions from their retirement accounts. But postponing withdrawals could cost you a lot of money.

- SANDRA BLOCK

There's a reason college students pull all-nighters and millions of older adults wait until April 14 to file their taxes. When confronted with a task that's necessary but joyless, it's human nature to put it off until the last minute.

For some retirees, taking withdrawals from their retirement savings accounts is another chore that falls to the bottom of their to-do list. Investments in traditional IRAs and 401(k) plans grow tax-deferred, but you must pay taxes when you take the money out. In addition, tapping a nest egg you've diligently nurtured for decades elicits fears that you'll run out of money in your later years.

If you're reluctant to take money out of your retirement savings, you may be gratified to learn that you have more time to procrastinate. SECURE Act 2.0, which was signed into law late last year, increased the starting age for taking required minimum distributions from traditional IRAS, 401(k)s and other tax-deferred plans to 73, from 72. In 2033, the starting age for RMDS will increase to 75. The change means that individuals who turn 72 this year will be able to postpone taking their RMDS for another year (technically until April 1, 2025, which we'll discuss later).

The delay in the deadline for taking RMDS will benefit seniors who got a late start on saving and need more time for their investments to grow. It will also benefit seniors who are still working in their early seventies, because they may be able to delay distributions until they retire and fall into a lower tax bracket. Almost four in 10 workers (39%) expect to retire at age 70 or older or do not plan to retire, according to the Transamerica Center for Retirement Studies.

A COSTLY DELAY