SURVEY SAYS: Should The RMD Be Required?

July 24, 2003 ( - There's a lot to like - and some that perhaps needs some closer scrutiny - in the new pension reform measure that managed to get "through" the House Ways and Means Committee last week.

Given the current (and seeming future) state of finance for the Government, I believe that the Minimum Distribution Age should remain at 70 1/2.  

b) The way they are working me, I will never make 75. My blood pressure is questionable now. Obviously there was some lobbying going on here.

I think that it should be left where it is, with one small change; the employer option to allow employees to postpone their distributions until they stop working should no longer be optional.   I think it's eminently fair to require employers to allow the deferment.

c) It has become so difficult to explain to those 70 1/2 and greater why they have to take this withdrawal.   We had one elderly gentleman that we spent over eight hours on the phone with explaining why it was necessary to take this withdrawal and why he could not roll over the money.   It did not help that the 72 year old was also a former trial lawyer.   He argued with us on every single point!

I think the age limit should be eliminated.   After all, the money is put aside for retirement.   If one can afford to retire at 50, it should be permitted.   If you are clever enough to live in opulence and splendor at 30, there should be no regulation keeping you from that.

C.   Should be eliminated altogether on all pension tax deferred instruments.   I'd also like to see the early age changed from 59 1/2 to 55 as long as there is no W2 income.

I think the answer should be (b). I think taxpayers have to ask the question, if this source of tax revenue is put off for a few more years, what taxes will need to be raised to make up for the shortfall?   Delaying one tax will require a new tax somewhere to make up for it.

b.   These are retirement accounts, not inheritance accounts.

I'm 29.   There will be at least 5 new Presidents before I am even close to MRD age (as it stands now at 70-1/2).   There will probably be 6 or 700 changes to the rules before I get close so I don't really care.   All I know is that people who are 70-1/2 now and are still working so they don't have to take an MRD need to get a life. Take a vacation.   Get a dog.   Do something but for the love of God, just stop working and let one of those college graduates who is working at McDonald's for $5.15 an hour have a chance.   Bunch a freaks!

But on a lighter note, I think the MRD Rules should be one age and that's the age for everyone.   It doesn't matter if you have a spouse that's 10 years younger or if you are still working.   So everyone who turns that age must take an MRD and there is one calculation and that's it.   No loopholes. No working until your 90 so you don't have to take one.   Nice and easy.   You can bet those goofballs who make these rules up don't have to administer or decipher them.

The way I see it, the purpose of section 401(k) of the internal revenue code is to encourage employees to save for their retirement by deferring income taxes on the money they put away for this purpose.   The implicit understanding in this arrangement is that the money saved will be used to fund their retirement years and will be taxed at that time.   Even though I hope to be in this category, it was never intended to be a tax shelter for the wealthy that don't need the money to fund their retirement.   So, as far as I'm concerned, there should be some minimum distribution required immediately upon "retirement."   If an employee doesn't need the money at that point, I don't think that they really need the tax shelter either.   I realize that that term (retirement) is rather vague though, and that many people may not be able to retire at the "normal" age of 65, so I can understand why 70 and 1/2 was chosen as the age that minimum distribution rules would apply.   If the money is not needed at that time, it can still be saved, but in a taxable account - where it should be.   I see no rationale for raising or eliminating the minimum distribution age, so I say - leave it where it is.

Let's get rid of the 70 1/2--- How did we get that number anyway?

Either change it to 75 or eliminate the need to take minimum distributions altogether.

I know, I know, IRS wants their unfair share of our hard earned savings, but we should be able to determine for ourselves (along with our personal accountant and attorney) how much money we want as taxable income and when we need it.   IRS should not dictate when we must take taxable income.

I suggest rethinking the issue completely.   The point of the RMD is tax revenue.   And it is a reasonable point, since the taxpayers deserve a "return on their investment" (tax deductibility of employer contributions). Indefinite postponement of taxability is unreasonable.   Accordingly, it makes no sense to have different treatment for NHCEs vs. HCEs, or 5% owners vs. everybody else, or Key Ees vs. Non-Key Ees, etc.   Let's put everyone on the same plane.   Let's use the Social Security Retirement Age, and simultaneously let's change that to 70, which is the only way the SS system can survive.   The only variation I would offer is to let the date be the later of age 70 or the NRD in the plan.

Given the recent news regarding the erosion of pension plan security and the elimination of these benefits, and given the fact that the administration seems intent upon "institutionalizing" the ability of DB plan sponsors to continue to evade their obligations, I'd vote for no minimum distribution requirements.   In other words, we'll never be able to retire, so why require a minimum distribution?   (A few more years like the last three and the point may be moot, anyway.)

The MRD rules are in place to prevent an unfair tax advantage to those participants who do not need to take a distribution. I think that since life expectancy rates are increasing these rules should reflect that by increasing the age to 75.

I've always felt that there should be a threshold for minimum distributions. No minimum distributions for participants with aggregate balances less than $250,000, for example.

Left where it is - plans are retirement savings vehicles, not tax shelters

(I know - I'm an idealist, or something)

A) Our life expectancy has to be up at least 5 years since 1962. Not to mention the RMD is a patently absurd rule to begin with.

I guess I have to ask what the purpose of having a minimum distribution age is?   Is it to make sure people pay taxes?   Is to make sure people get to enjoy some of their dough before they die?   Is it to ensure people do retire so that others can enter the workforce?   Not really knowing the purpose of the law makes it hard to judge the distribution age. Knowing that more and more people are living longer and longer, it seems logical to let them work longer without negative tax consequences.   Someone has to be the greeter at Wal-Mart, after all, right?   Of course, if I had a better idea of the reason for the law, I might pick C over A.   I guess I represent the average Joe - the guy who has no idea why they made the law in the first place but who wants to be able to keep as much of his hard earned dough as he can.   Whatever choice will do that for me is the one I pick.

Should stay where it is.   (This ONLY effects the wealthy now that non-owners who are still employed may defer their distributions until they actually retire.)

C. Eliminated altogether.   Why should the government have any say about when we have to tap our retirement accounts?   If I can enjoy my retired lifestyle without using retirement savings, the better for me.

I don't know why I rant so much about this stuff, but--since you asked--here's my opinion on today's question...

Is this an issue that the American worker cares about...or even knows about?   If Americans were asked about their #1 priority for legislative reform that would help them better prepare for retirement, would this issue even hit the charts?

As you note, supporters point to "workforce demographics" and longevity trends to justify this action.   If they also objectively reviewed statistics relative to national savings rates and "retirement readiness," they would have to admit that a "required minimum distribution age" is completely beside the point.   With 401(k) participation rates dropping below the 70% mark, with median contributions below 3% of salary, and with median account balances at no more than $15,000, the real issue should be a "prohibited minimum distribution age!"   In other words, you can't withdraw assets before age 70!   I realize this is unrealistic and ultimately illegal, but if Washington wants to monkey with pension laws, they ought to focus on how to boost savings and reduce withdrawals by average workers, not how to let those who don't need the money postpone withdrawing it even longer.

OK, I'm done now.   I feel better.   If you keep asking, I'll keep writing.   I hope you're doing well.   I love what you've done with Plan  

Good morning.   Being almost 64 (don't tell anyone), in exceedingly good health (thank heaven), liking my job (80% of the time, anyway), I plan to hang around the workforce for a long time.   Having the option to start IRA type distributions at 75 rather than 70 ½ is therefore a plus.   That said, if this is one more perk that translates into a still higher Federal deficit, let's make the improvement conditional on the health of the economy or revisit the issue after the '04 election.   I can wait that long.  

As usual, a great survey question!

My answer is: c - should be eliminated all together!     In all my years working within the pension/401(k) world, I have always felt that we should not be penalized for saving our own money.   I have a fundamental problem being forced to receive dollars we may not need, just so the IRS can get their cut.

If people are disciplined enough to save all that money, and not need it and can leave it to their heirs, then I applaud them!   Let the heirs pay the taxes, since the heirs are the ones benefiting from their parent's largess.

I always felt this MDR was just another way for the IRS to stick it to us.

PS. I also have a fundamental problem with the dollar limitations when it comes to saving in 401(k) plans.   Again, if people want to live a simpler, smaller lifestyle to save $20K or $30K or more a year in their 401(k) plan, let them.   The IRS will get their taxes down the road when either:

1. Participant starts drawing their money out or;

2. Participant turns 70 1/2 (or 75?) and has MDR or;

3. Participant dies and dollars are distributed to beneficiaries.

Not to worry---Uncle Sam is ALWAYS THERE with his very LARGE hand out!!!

b) Be left where it is.   These accounts are tax advantaged because the government wants to encourage retirement savings.   I see no problem with actually requiring the people to use (or at least pay taxes on) some of the money at the time they typically retire.   The overwhelming majority of the people need to start using their savings before age 70.   Raising the age is another case of protecting people who need no protection.  

Since you didn't give me option (d) reduce the RMD to 65, I will have to go with (b) leave the RMD where it is.   The only people who gripe about it are the ones who have too much money anyway!   I believe when people start receiving SS benefits (especially ones that don't NEED SS income to live on, should be required to take retirement assets before qualifying for SS.   Just my opinion.

We all know that taxes will have to be paid on our tax-deferred retirement account money eventually.   It's tax-deferred, not tax-free.   And if the cost is really so high to raise the age for the rmd, then we shouldn't do it.   Taxes are necessary for our government to function, and we all need to pay our share instead of delaying it for our heirs to worry about.   I'm worried enough about the Social Security burden our next generation will have to bear to keep my (future) payments coming.   I don't need to add income tax hikes to their woes just so I can defer paying a little bit longer.

The minimum distribution age should be raised.   Age 75 would be a beginning.   Retirement funds saved by individuals over their working lives should be viewed as the "individually created safety nets" that keep Americans self sufficient and free from the tyranny of falling into the iron lap of government in the event of economic, health or other disaster.   Face it, the funds kept invested is capital working for the nation and everyone benefits.   There is no need for the "tax eating parasites" to force distribution and remove the resources from the nations working capital before the saver needs the resource. The saver should decide if and when the resource should be consumed.   

It's clear. Every proposal this Congress advances is designed to repay wealthy constituents for their support (contributions). Very few middle class citizens can afford to delay plan withdrawals until age 70.5 let alone age 75. Never before in my lifetime have I seen a Congress so totally and blatantly favor the wealthy in nearly every piece of legislation.

I think the law should be modified and staged in one year increments until the 70.5 years of age goes to 75.   However, should those affected never draw against their retirement plans and pass on, there should be taxes paid on whatever they would have paid if they had drawn against it before being passed to their beneficiaries. If they are fortunate enough to draw for five years against their plan, then there should be no personal income taxes assessed against the residual passed to their beneficiaries.

This way, a healthy 80 year old can have their cake and eat it too.

Depending on the audience, I have found the MRD to have mixed results.   For example, I worked at a brokerage firm where it was common for brokers to remain actively employed well past age 65.   For a lot of them, this was an annoyance of taxable income and to them, really a mere pittance.   However, my current employer has an employee in her 70's who really needs every cent of income that she makes.   She contributes the minimum she can to take advantage of the company match, and despite being confused by it, takes whatever she can at distribution time.   Since everyone's situation is different, I don't think it should be mandatory, but voluntary.

The required minimum distribution should be eliminated.   Based on an individual's need, he/she should determine when they should begin getting their money.

(C) Be eliminated altogether. Delay as long as you can. You take money out of a retirement plan for two reasons, (1) you need it, (2) Our government wants you to pay income taxes on it. I didn't say both were good reasons.

I think the answer should be (c) eliminate it altogether.   We have a fairly large plan but of the participants that I have to annually calculate an RMD for NONE of them are or have ever been Highly Compensated.   90% of our highly compensated participants have usually long ago retired and moved their accounts into a personal IRA before reaching age 70.5.   Most of the "regular Joe's" that are forced to take an RMD find it very hard to understand why they are being forced to take a taxable distribution at a time when they do not need the extra tax burden.   We also had a few irate participants that did not understand why they were being forced out of the market a year or two ago when their stocks were at an all time low.

I will close my ranting with a suggestion, if Congress is so concerned with the rich getting richer why don't they put a balance limit into the 70.5 provision?   Say once a participant reaches 70.5 and has an account value over $100,000 then an RMD must be calculated.   Sometimes you have to wonder why the obvious things always seem to escape our "representatives" in Washington.

Pay now or Pay later?   What real difference does it make??...Not everyone who gets to the point of minimum distributions is "wealthy".   Guess that is a relative statement.    Either leave it alone or eliminate it all together is my opinion.

I vote for C- remove it all together. People should be able to do what they want with their money. No one should be forced to receive distributions that they do not want for whatever reason.

Answer: b).   The reason, the Feds (Treasury - IRS) will need tax income in a big way when coming to the decade of 2020. They will either need to raise the effective tax rate, capture more income from capital gains or real estate sales, or some other sinister new tax program. Besides, enjoy the expenditure of accumulated resources in the early days of retirement rather then post 70 when you may not be able to remember that you are, or who you are, in retirement

Age 75 RMD is clearly better for taxpayer since earlier distributions (any size) are still an option.   However, IRS would take a hit; very possibly causing creative measures (unknown at this time) to offset the loss.

Every time the government sets up a way to accomplish a goal, they seem to make it as difficult and cumbersome as possible.   Instead of having a required minimum distribution age (with the ton of regulations and formulas) it seems to me it would be much simpler to have a higher tax rate on money not distributed prior to one's death -- something like the 10% penalty for early withdrawal.   Let the people defer taxes as long as they want.   Just make it clear that if they get too greedy, Uncle Sam will get more than his pound of flesh.   I guess this plan would never fly because anything that simple would dramatically reduce the bureaucracy needed to enforce it.  

Leave it where it is.   For once, I think the naysayers have a real point.

Because THE IRS always gets THEIRS, I see no possible way to eliminate the required minimum distribution age altogether under the current economic system.   However, since Social Security retirement age has been increased, and people are working longer and longer out of need, I feel there would be great promise in increasing the required minimum distribution age to 75.   While it would allow the wealthy to put off paying taxes, it would also allow the not-so-wealthy to put off paying taxes on money they weren't using, too.

I think it should be eliminated altogether.   As pensioners age, they need to have more assets to help with medical and other needs, not less.   However, raising the age to 75 is a good step in the right direction.

The proposed minimum distribution age change seems to be totally unnecessary, and should therefore be eliminated from the bill, particularly since there has been such a high "price" attached to it.   If, in fact, there is a tax benefit to some folks of advanced years in high tax brackets, it would not be a great one anyway (I would gladly find myself in the highest federal tax bracket at age 70.).  

The greatest problem with changes to the tax code is that they exacerbate the tendency to make decisions based not on pure economic efficiency.   The best change we've seen for at least the past decade has been the reduction (elimination would have been better) in the double taxation of dividends.   This would have substantially reduced the warping of the stock markets that reached its apogee in 1999 and resulted in the three year bear market that we've just enjoyed.   In 1999, the average stock without earnings was up by 20%, while the average stock with earnings was actually down by 2%.   Contempt for dividends, which require actual earnings, was at the heart of this massive illustration of the "greater fool" theory, which says that you never pay too much for anything, if someone will pay you more for it.   We ran out of fools in March 2000.   Actually, the fools have been buying long term government bonds since last fall.

But, I digress.   In summation, I would suggest just leaving the minimum distribution age right where it is, since changing it will not add one iota of economic efficiency.

b. Be left where it is.   For those that do not want to start taking distributions, they can continue to work and postpone distributions under the 96 small jobs protection act.

I have a feeling this will be a revenue raiser in the long run, as it will have people putting off the distributions, and therefore making more money subject to the estate taxes when they die, rather than normal income tax rates.

The socialist requirement should be eliminated all together...the gov has no inherent right to tell Americans when to spend their money!! McCarthyism lives well today.

It should be eliminated all together.   When the Small Business Job Protection Act changed the required beginning date from 70 1/2 to the later of 70 1/2 or retirement, it was simplification - HA HA HA.   It became a nightmare for those plans that did not adopt the rules for a few years and provided for participants to defer or suspend!!   As a quote from my co-workers calendar "Officials of the IRS/DOL and government should live by the rules that they make" - this will allow them to see what kind of nightmares they are creating with all the Pension Rules!!

I think the RMD should be left at 70 1/2 - I agree that this provision only benefits the wealthy because they are less likely to need the money than your average middle class retiree. By allowing them to keep their money in a tax-deferred plan past 70 1/2, tax revenues are delayed, and with most of the baby-boomers reaching retirement age soon, this could have a huge impact on the economy.

401(k) plans were started as a way of offering the average person a way to save for retirement. (Thanks to Ted Benna, a man I've had the fortune to meet and spend time with at 401(k) conferences).

On another note, if we end up with any of the other earlier proposed savings plans - RSA, LSA, and ERSA, the RSA and LSA will only benefit those who can afford to use them.   And as a State employee working 2 jobs to make end meet, it definitely won't be me.

Can you tell I'm a bleeding heart liberal?

I can already envision the regulations:

If you attain age 72 on or after January 1, 2004, but prior to January 1, 2008, your first (or perhaps second) required beginning date will generally be April 1 of the year following the year you turn age 72 unless your first required beginning date (as defined without regard to this subparagraph) is between January 1, 2004 and April 1, 2004 in which case you will not qualify for a second required beginning date but rather your first required beginning date (as defined under prior regulations) will be extended to the later of April 1 following the year you turn age 72 or April 1 of the year following the year of your first required beginning date (as defined without regard to this subparagraph).   Assuming you attain age 75 on or after January 1, 2008, your second (or perhaps third) required beginning date will be April 1 following the year in which you attain age 75 unless...

c) Eliminated - It is their money and they should take it when they want to - plus it is a pain to mess with.

No matter the (pseudo) intellectual, thought (less)-provoking debate (dribble) amongst the congressmen who pen such tax and pension reform (trash and rubble) legislation,

The outcome will involve an increase in the tax liability I incur each year, as I am neither a low-income earner, nor a top wage-earner.

Do I want to see the limit raised?

Not for a 73-year-old business owner who continues to pull in a high-six or seven-figure annual income because my annual tax liability will increase in direct proportion to the subsequent national tax revenue decrease.

Do I want to see the limit raised?

Yes for a 72 year-old earning less than $30,000 with no DB provision, a limited SS provision, and an overall shortfall in retirement income through private savings or other pensions, who continues employment so as not to become the government's (read our as in every taxpayer's) fiscal-burden.

Should these factors matter? If they do, are we implementing a liability prejudicially? If they don't matter? Why change anything?

What will prove more interesting - especially if the RMD provision is unchanged, is what will happen when these pols learn the actual, total value of that portion of pension assets attributed to ownership by aging baby boomers (the generation which has been saving for retirement since before the 1980's enhancements in the private pension program.) These values, and the estimated loss in tax revenue will have proponents of a current increase backpedaling six ways from Sunday to decrease not only the age for a RMD, but the retirement age as well!

Good luck with your survey!

An avid reader....