Transcripts

"Money File"-Ending "RMD's"

SUSIE GHARIB: In the "Money File" tonight, required minimum distributions and your 401(k) account. Here's Harriet Johnson Brackey, personal finance columnist at South Florida's "Sun Sentinel."

HARRIET JOHNSON BRACKEY, PERSONAL FINANCE REPORTER, SO. FLORIDA SUN- SENTINEL: There's a movement afoot to suspend the required minimum distributions from qualified retirement plans this year and this idea makes zero sense to me. RMDs, as they're called, are what people age 70 and a half must withdraw from their individual retirement accounts and 401(k)s every year. The reason for them is the government won't let you defer taxes on that money indefinitely. You have to take it out and pay tax or you'll face a heavy IRS penalty. The RMD amount depends on your age and what your portfolio was worth at the end of last year. And I'm sure that account value was higher for almost everyone than what their portfolio is worth today. Proponents of the no- distribution idea argue that retirees shouldn't have to take losses or sell stocks at this low point to make those required withdrawals and this doesn't make sense, because, if you depend on your retirement account for everyday expenses, you've probably already withdrawn enough to meet the required minimum. Keeping the money in the account isn't an option if you need it to eat or pay the bills. Only those who don't need the money can afford to leave it there. Look at it this way. This idea would help some well-off people to lower their tax bill, while the poor fellow living off his savings has to pay up. It's a bad idea. I'm Harriet Johnson Brackey.

***Harriet responded to negative feedback about her idea in a blog entry titled, "Brackey on Required Minimum Distributions."