2022 RMD Considerations

Categories : Financial, News
November 30, 2022

For decades, Congress and several successive Administrations have encouraged individual financial responsibility by authorizing tax-favored Retirement Accounts. Over time, tax benefits from participation in retirement plans have evolved, but the final goal remains constant – encouraging personal retirement income to supplement government-based benefits.

In exchange for tax deferral, or tax elimination on the growth of some assets, Congress requires account owners to begin drawing funds from accounts as they grow older. Dubbed Required Minimum Distributions, or RMDs, these withdrawals are taxable in the year of withdrawal. No tax is due on withdrawals from Roth Accounts, and there is no requirement to take age-based distributions for (non-inherited) Roth IRAs.

Rules for withdrawals and taxes are forever being “tweaked” by Congress and IRS, making it important to follow changes to minimize lifetime tax effects on Retirement Account withdrawals. Passage of the S.E.C.U.R.E. Act (dubbed “SECURE 1.0”) in 2020 changed many rules, and a pending modification called “SECURE 2.0” is likely to further alter RMD rules.

Major changes are pending for Inherited IRAs, but as of this writing these rules have not been finalized. Due to uncertainty, IRS has waived the 50% penalty for missing an RMD on Inherited IRAs, both for 2021 and 2022. This applies to Inherited Accounts where the death of the original owner took place after December 31, 2019.

While we expect finalized rules sometime later in 2022, or certainly in early 2023, anyone who has doubts regarding their RMD status should consult a qualified professional for guidance through the maze of regulations pertaining to retirement savings. We are available on Saturday mornings during the Van Wie Financial Hour radio program on WBOB radio from 10:00 to 11:00. Your account custodian should also be able to address your questions, but they will be extremely busy until year-end.

Other changes made to RMD rules in recent years included the elimination of all RMD requirements for the year 2020 (due to COVID-19), and implementation of new Life Expectancy Tables on January 1, 2021. These welcome changes extended the expected life of affected Retirement Accounts, reflecting increased longevity in today’s citizenry.

Occasionally, IRS implements user-friendly changes, and we give credit when and where it is due. There is, however, a great deal yet to be done to bring benefits for individuals and small company employees in line with those in large company 401(k) Plans.

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