A presidential executive order that could lead to investors keeping their money longer in tax-deferred retirement accounts? What’s not for investment advisors to like?

Especially intriguing to advisors is the language in President Trump’s new executive order calling on the Treasury Department to review its rules for required mandatory withdrawals from 401(k) plans and IRAs.

Generally, investors must start withdrawing funds from these accounts when they turn 70-and-a-half.  Allowing investors to stay invested longer also preserves the assets under management advisors manage and AUM fees they charge.

“We get a lot of clients who are dismayed because they have to start taking withdrawals at 70-and-a-half when they don’t need the money,” said Edward Snyder, founder and partner, Oaktree Financial Advisors, Carmel, Ind. “They'll take the withdrawal, pay the taxes on it and reinvest it, but the only reason they're taking it out is because they're required to. If they didn't have to take the withdrawals, they could keep the money in their IRA tax deferred and it could pass to their beneficiaries.”

The Treasury rules have not been updated since 2002, according to the White House.

Lifting mandatory retirement plan withdrawals would especially benefit Americans who are still working at age 70-and-a-half, who could then wait until they stop working and are in a lower tax benefit to start taking benefits, said Jim Oliver, the high-net-worth practice leader in Calvetti Ferguson’s San Antonio office.

“Investors who are still receiving payouts from the sale of a business and can delay withdrawals would benefit for the same reason,” Oliver said.

Any investor who could afford to self-fund retirement for several years past 70-and-a-half in order to make Roth conversions could reap both tax and estate planning benefits, the veteran advisor said.

The benefits for high-net worth investors if required minimum distributions (RMDs) are eliminated are hard to miss, said Monica Dwyer, vice president and wealth advisor, Harvest Financial Financial Advisors, West Chester, Ohio. “Often times, these clients would prefer not to get taxed either because their income is very high or they would prefer to keep this money tax deferred for the next generation.” 

But benefiting the wealthy may also quickly turn the subject of easing RMD mandates into a political battering ram for Democrats. “This will have an impact on the amount of tax revenue the federal government is able to collect, so it surprises me that Trump would be lifting this requirement in light of the tax cuts that were recently passed,” Dwyer said.

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