Q. I was going to start withdrawing from my retirement savings after I turn 70 on June 15, 2020, but heard that the required age for withdrawals is now 72. I have $1,234 per month from Social Security. Should I let the retirement money grow?
A. You’re correct about the change in the age when you have to take Required Minimum Distributions (RMDs) from your retirement accounts.
The SECURE Act, which stands for Setting Every Community Up for Retirement Enhancement Act, was enacted at the end of 2019.
It changed the date at which distributions must be taken from retirement accounts to age 72 from age 70 ½, said Claudia Mott, a certified financial planner with Epona Financial Solutions in Basking Ridge.
This includes traditional and rollover IRAs, 401(k)s, 403(b)s and 457 plans.
“The withdrawals made from these accounts are typically considered taxable income and will be reported as such on your personal income tax return,” she said. “Roth IRAs do not have minimum age distribution requirements.”
Mott said the decision about whether to take distributions now or delay until you reach age 72 depends in large part on whether you need the money now or can afford to hold off.
“If you have income from sources other than Social Security and are able to meet your living expense needs comfortably, then the decision to wait may make sense,” she said. “Depending on how the account is invested, the additional time may enable the value to increase, especially in light of the decline the stock market has experienced thus far in 2020.”
At age 72, a required distribution will be calculated based on the previous year-end value of the account, Mott said, but if you need of additional income, you can take any amount you wish from the account now — bearing in mind that taxes should be withheld from the distribution to avoid an unwelcome tax bill when you file for 2020.
When you reach age 72, you’ll have to take at least the RMD.
Another factor to consider is how these distributions will impact your overall income picture as this could alter that amount you must pay for Medicare as well as your income tax bracket, Mott said.
She said Medicare uses a two-year look back to determine whether an additional premium will be paid by each individual and couple.
“For 2020, the individual income limit based on 2018 tax data that will avoid an IRMAA — Income Related Monthly Adjustment Amount — is $87,000 and $174,000 for a married couple filing jointly,” Mott said. “Your tax professional should be able to provide guidance on the right amount of tax to withhold on your retirement account distributions, how the income will affect your tax rates and what your overall income picture may look like for future Medicare planning purposes.”
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