Significant Increase in Required Minimum Distributions with Large Account and High Income Earners: Sec. 138302
Hey all –
Referencing the recent proposed legislation out of the House Ways & Means Committee (https://www.forbes.com/sites/jamiehopkins/2021/09/15/7-ways-the-new-tax-bill-could-impact-retirement-planning/?sh=2dfefd165423) which requires RMDs for large account balance IRA holders. It’s unclear reading the text of the proposed legislation how the the RMD would be taxed if the IRA holder was not yet of retirement age. For example if a 40 year old had $15mm in his or her Roth IRA and the proposed legislation required that holder to take an RMD of 50% of the amount above $10mm in any one year, so $2.5mm, would that be taxed at ordinary income, capital gains, tax free, etc? It seems from the legislation that they wouldn’t charge the 10% early distribution penalty but unclear how it would work outside that.
I know it’s still just proposed legalization but given it seems likely to pass I wanted to throw it out to the group to see if anyone had any thoughts or guidance. Thanks for everyone’s help as it’s my first time posting on this forum!
Best,
R
Permalink Submitted by Alan - IRA critic on Thu, 2021-09-16 15:39
It would be taxable, but they would have to authorize a penalty waiver. Up to now, RMDs were only taken as death benefits (no penalty) or after 59.5, so this would require a penalty waiver for all RMDs, including any conversion 5 year recapture tax if a Roth RMD was required for owners.