Changes to Treasury actuarial tables for calculating RMDs would need to be added to RESA, repeals the maximum age for traditional IRA contributions, increases access to 401(k) plan annuities and removes roadblocks to multi-employer retirement plans.
“There’s a better chance that RESA will be passed in the next six months than having Treasury do a traditional rulemaking that fast,” Hopkins said. “There seems to be growing support for RESA in DC. It is coming up more and more frequently in conversations. We could see a version of this move forward.
That’s music to advisor ears. New research on retirement asset withdrawals suggests what advisors already know about their clients: required minimum distribution rules drive IRA withdrawals.
Traditional IRA owners—who are subject to RMD rules—are more likely than Roth IRA owners to take a withdrawal at age 71 or older, according to the study “How Required Minimum Distribution Rules Drive IRA Withdrawals (https://www.ebri.org/pdf/FF.314.IRAs.13Aug18.pdf) from the Employee Benefits Retirement Institute (EBRI).
Only 6.2 percent of Roth IRA owners ages 71–79 took a withdrawal, compared with 85.4 percent of Traditional IRA owners, who are subject to the RMD rules, EBRI found. Also noteworthy, withdrawal amounts taken by those 71 or older are generally no greater than the RMD.
The executive order “creates more flexibility and efficient retirement distribution strategies that can impact investors and next generations significantly,” said Ashley Folkes, a divisional vice president with AXA Advisors, Scottsdale, AZ.
“Extending the age for RMDs would allow many investors to manage and reduce their tax bills, invest longer and pass more or even all of their qualified money on to beneficiaries. This would significantly impact the way we advise clients,” Folkes said. “Right now withdrawals are taxed as regular ordinary income and RMDs often push clients into higher tax brackets, which can trigger a surtax on taxable income, higher taxes on Social Security benefits and Medicare high-income surcharges.”