How a higher age for required withdrawals could impact your retirement

Required withdrawals apply to 401(k) plans — both traditional and the Roth version — and similar workplace plans, as well as most individual retirement accounts (Roth IRAs do not come with required withdrawals until after the account owner’s death).

Current law says you have to take your first RMD for the year in which you turn 70½, although it can be delayed until April 1 of the following year. In all subsequent years — including the one when you take your first RMD by April 1, if you go that route — you must take the required amount by Dec. 31. If you’re working and contributing to a retirement plan sponsored by your employer, RMDs do not apply to that particular account until you retire.

The amount you must withdraw is basically determined by dividing the balance of each qualifying account by your life expectancy as defined by the IRS.

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Advisors say that if you were to leave the money in the account to continue growing, the higher balance at age 72 would mean a higher RMD — both because of the higher balance and a shorter life expectancy than at age 70½.

“If the life expectancy tables aren’t changed, you’d just have to withdraw a larger amount,” said Kristi Sullivan, a CFP and owner of Sullivan Financial Planning in Denver.

The charts below illustrate how a theoretical $500,000 portfolio would perform over time, earning 5% annually, under the current and proposed law. The difference at age 89 is $33,500 more if RMDs started at age 72.

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