Potential for RMD waivers in a bear market?

Jim0445

Legislation has been introduced in the U.S. House to waive Required Minimum Distributions for the 2022 year:

"July 19, 2022 - Representative Warren Davidson (R-OH) has introduced HR 8331, a bill that would provide for a suspension of required minimum distributions (RMDs) from retirement plans and IRAs for the 2022 calendar year. Such relief was last granted under the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020, which suspended distributions for the 2020 tax year. Similar to this relief, the bill proposes that RMDs taken for 2022 be eligible for rollover.

The bill has been referred to the House Committee on Ways and Means. Any progress will be monitored, and details provided as warranted."

Stocks are in a bear market and bonds have experienced the worst losses in modern history, resulting in erosion of retirement accounts this year. Requiring liquidation of depressed securities to fund RMDs seems sub-optimal. What are the odds that Congress will provide some relief for taxpayers who have saved for retirement in IRAs and 401ks?

hank

As I recall, that was done in 2008. Suspect the measure will pass if the market slaughter continues. Politicians might find it hard to oppose such a seemingly egalitarian measure. Most of my $$ is either in Roths or outside the tax deferred umbrella. So, personally it isn’t a big deal.

LewisBraham

The people who are well off enough not to need to take a required minimum distribution probably don't deserve this tax waiver. Most people who are struggling will have to take the distribution. So, this is really another tax break for the rich in my view.

catch22

@LewisBraham

Most people who are struggling will have to take the distribution. So, this is really another tax break for the rich in my view

Say what?
You suppose that the overwhelming majority of those required to take a RMD are rich?
As in really rich.
I thinking about baby boomers who provided for a family.......2 or 3 children.......ah, perhaps college monies.....ah, provide a decent home and all that goes with that; and found (because they were prudent) to set aside a few dollars into a 401k/403b, which is now a rollover IRA.
They were never able to max out annual contributions in 401k, 403b or Roth plans
And many of them do not have a pension plan.....those were never an option and if they did start work with such a plan, many started to be frozen in the late 1990's.
If they are now 65, they may choose to start SS and perhaps a small pension (many plans have no cost-of-living clause). There are many who are not RICH.
Regards,
Catch

LewisBraham

No, I’m saying those who need the money to live in retirement will take the distribution because they have to while those wealthy enough to delay taking the distribution and recover from their losses probably don’t need more of a tax break. The whole idea of an RMD is to prevent what was supposed to be a temporary tax shelter from becoming a permanent form of tax evasion. By default those who only “set aside a few dollars” are not the ones who will benefit the most from delaying RMDs. If they only have a “few dollars,” they will not be able to afford delaying the distribution. It’s the wealthiest who will benefit most from the delay.

catch22

Fair enough. There will be those who fall through the cracks in both areas.
Have a good evening.

LewisBraham

Probably a reasonable compromise would be to allow people with retirement balances below a certain amount to delay RMDs but to require those with balances above that level to still take it. Even more progressive would be to provide a subsidy to those with the least assets who depend on the distributions to live on so they have time to recover and not have to take the RMD. I see no reason, though, for allowing someone with a multimillion dollar balance to delay the RMD.

Derf

IT is what it is. BS

Ben

Coming this late in the year it's not much benefit to those who receive RMD-s monthly.

Anna

I have an idea. How about a RMD year with no taxation on withdrawals!

LewisBraham

@Anna What you're talking about is a regressive tax break in which the rich benefit far more than the poor as the bigger an investor's account is, the larger the withdrawl they can make to avoid taxation. It would be a bonanza for the wealthy to take out all of their gains with no tax consequences. But I sense you're just joking.

Anna

@LewisBraham Of course. On the other hand, I know more well-off people who believe they deserve a handout than less well-off people. Just as long as you call it something that sounds important and skip the talking points like "welfare for the rich". The one I especially like is "for the makers".

Then, of course, if such a policy arose, I would take advantage of it while I go tsk, tsk. So, who am I?

LewisBraham

AndyJ

Ben said:

Coming this late in the year it's not much benefit to those who receive RMD-s monthly.

I think that's what the "eligible for rollover" provision fixes. Anybody who took RMDs out before the bill passed can redeposit the amount they took out without penalty. I'm guessing the usual 60 day rollover rule wouldn't apply, or maybe you'd have 60 days to put it back after the legislation went into effect (?).

Ben

AndyJ said:

Ben said:

Coming this late in the year it's not much benefit to those who receive RMD-s monthly.

I think that's what the "eligible for rollover" provision fixes. Anybody who took RMDs out before the bill passed can redeposit the amount they took out without penalty. I'm guessing the usual 60 day rollover rule wouldn't apply, or maybe you'd have 60 days to put it back after the legislation went into effect (?).

Wow, thanks. I had no idea.

BenWP

The Covid suspension of RMDs also permitted returning any withdrawal already taken, penalty free. I was on a monthly w/d plan at the time and decided to suspend payments after March or April. It seemed a hassle to return the money I’d received. Now I’m annual on Dec 15.

Anna

I also moved mine to December. After this year, however, I wonder if the RMD, taken on January 1, would be a better timing for the end of the previous year.

hank

Timing of distributions is an interesting question. I’ve doggedly taken them from the Traditional IRA and allowed, for the most part, the larger Roth to grow. Generally, my needs require a somewhat higher amount than the RMD would require. This of course results in higher yearly Federal taxes. Willing to pay the price. An exception was the purchase of a new car in 2018 for which I took a Roth distribution.

I don’t carry a separate cash balance outside retirement investments. So, everything is “on the line” all the time. Generally that’s been beneficial as we’ve enjoyed strong markets for many years. In a bear market, however, the “cashless” approach is a detriment. Last year I set aside the planned 2022 distribution mid-year by moving the intended amount to cash while markets were still high. Paid off. Now - I’ve decided to take the opposite approach for 2023 with markets so depressed. Subsiding mostly on pension and SS, it will be possible to delay the 2023 distribution at least to mid-2023 and probably a few months beyond. All depends on what Mr. Market decides to do.