Plan would give retirement savers more time

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

give retirement savers more time

Sen. Ron Wyden, D-Ore., proposes to change some aspects of the way people must take retirement withdrawals from tax-deferred accounts. Chip Somodevilla/Getty Images

I admit it. I’m thinking about retirement. Of course, I’ve been thinking about retirement since I was 30.

Back then, my retirement thoughts were (mostly) about socking away money for my post-career years. Now they’re about how to take that money out so that I can enjoy the type of retirement I want.

The tax code makes some withdrawal decisions for retirement savers. If you have a traditional IRA or other tax-deferred account like a 401(k) workplace plan, you must take what are known as required minimum distributions once you hit age 70 1/2.

Sen. Ron Wyden, D-Ore., thinks that age trigger needs to be changed.

RMD details

Required minimum distributions, or RMDs in Internal Revenue Service acronym-speak, is the amount you must take out of tax-deferred retirement accounts each year once you hit that septuagenarian half-birthday.

The reason is obvious. Uncle Sam is tired of waiting to collect taxes on all that retirement money that’s been sitting untouched, in many cases for decades.

The specific withdrawal amounts are a percentage of your total tax-deferred retirement account balances, based on your age.

What if you don’t need or want to touch your traditional IRA or similar account when you get into your 70s? Tough.

Fail to take your annual RMD and you’ll be hit with a penalty that’s 50% of what you should have withdrawn.

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Waiting longer on RMDs

Wyden, who is the ranking Democrat on the tax-writing Senate Finance Committee, wants to push back the RMD age.

In a proposal that Wyden is calling the Retirement Improvements and Savings Enhancements, or RISE, Act, he proposes bumping up the RMD age to 71 in 2018.

The age mandating retirement account distributions then would be increased to 72 in 2023, 73 in 2028 and, thereafter, would be adjusted based on actuarial estimates of increases in life expectancy.

“The ‘required minimum distribution’ age of 70.5 years has remained unchanged since the early 1960s,” says Wyden. Since then, life expectancy has risen, but the target withdrawal age for retirement accounts has not moved. Wyden’s proposal essentially is a life-expectancy inflation adjustment.

No RMDs for smaller amounts

Wyden also thinks it’s unfair to force savers to deplete their retirement savings within a certain time frame when they don’t have huge sums in their tax-deferred accounts.

The RISE Act would exempt owners of traditional IRAs and similar RMD-affected accounts from the mandatory withdrawal rules if balances in their retirement plans come to less than $150,000.

This flexibility, says Wyden, will let owners of small retirement accounts use that money as they need during their older years.

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Tell Wyden what you think

Wyden acknowledges that some already are questioning some of his proposals.

For example, there is concern from plan managers that the $150,000 exemption level would be hard to administer.

So Wyden is seeking public input on this and other portions of the RISE Act.

The measure, he notes, is not a formal piece of legislation (yet). Rather, it’s a discussion draft. It is being circulated specifically to get reaction, review and comment. “The responses will be reviewed and, if appropriate, incorporated into legislation,” says Wyden.

You can email your thoughts on the RISE Act to If you prefer snail mail, address your thoughts to Wyden at Senate Committee on Finance, 219 Dirksen Senate Office Building, Washington, D.C. 20510.

Bankrate also would like to hear from you on not only the RISE proposal discussed here, but other retirement savings issues. Do you find tax laws help you sock away cash for your golden years? Or are the retirement account tax rules too complicated or restrictive?

Keep up with federal and state tax news, as well as find filing tips, calculators and more at Bankrate’s Tax Center.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Baby boomers’ 2016 birthday gift to IRS

By Bankrate

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

Baby boomers reach a momentous tax birthday this year, but it’s the Internal Revenue Service that will be getting presents.

The first baby boomer was born on Jan. 1, 1946. Yes, that’s been documented. Kathleen Casey-Kirschling has this distinction.

Important RMD birthday

As Casey-Kirschling and her peers reach age 70 1/2, if they have money in traditional IRAs or other tax-deferred retirement accounts, such as workplace 401(k)s, they must start taking out some of those funds.

This process is known as required minimum distributions, or RMDs. They are based on actuarial data and require affected account holders to calculate how much to take out of these accounts based on their ages.

Exactly how much to withdraw is spelled out in one of several IRS tables, the most commonly used being the Uniform Lifetime Table.

The reason for the RMD rule is simple. Uncle Sam is tired of waiting for folks to withdraw their retirement funds that are growing without being taxed. By making account holders take out at least some of the money when they hit 70 1/2, the U.S. Treasury starts getting taxes, at ordinary tax rates, on at least some of the holdings.

Age-based withdrawal amounts, deadlines

Basically, you take the total value of all your deferred retirement accounts at the end of the year just before the one in which you hit 70 1/2 and divide it by the amount shown in the IRS table for your age.

That’s the amount you must withdraw and pay taxes on when you file your next tax return.

You get a brief reprieve in the year in which you turn 70 1/2. You can postpone that first RMD until the following April 1st. For the new RMD baby boomers this year, that means taking their first RMD by April 1, 2017.

But that also means in 2017, they’ll have to take 2 RMDs: the deferred 2016 tax year withdrawal and the one for 2017, which must be made by Dec. 31.

Birthday tax math time

Happy birthday, boomers! Now do the math. Bankrate’s RMD calculator can help.

If it’s better for you to make your first RMD this year, do so by the end of the year.

If, however, for your financial and tax purposes, it’s better to wait until next April for your initial RMD, then wait. As long as you meet that deadline, the IRS is willing to wait for its present from you for hitting this tax-important half birthday.

RMD alternatives

Just because you must take out the money doesn’t mean you have to spend it. You can put it back into some other, taxable account where it can keep growing.

Or if you’re feeling philanthropic, you can have your RMD amount directly transferred to your favorite nonprofit. You won’t get a tax deduction for the RMD-based charitable gift, but you won’t have to pay income tax on the donated amount.

High cost of missing RMD deadline

But don’t miss the required retirement account withdrawal. The penalty is stiff.

Not making your prescribed RMD on time means that in addition to the required withdrawal amount, you’ll owe Uncle Sam an additional 50% of the amount that you should have taken from your accounts.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.


Retirement Planning Means Peace of Mind in Boca Raton

Herman Boca Blog

Boca Raton offers beautiful beaches, world-class shopping, amazing restaurants and warm weather all year round, what’s not to love? That’s why, when thousands of Americans retire every year, many move to sunnier climates in Florida to enjoy the relaxation that comes with retirement. In a fluctuating economy, however, retirement planning doesn’t end on your last day of work. The expert team at Herman & Company CPA’s, PC offers unparalleled planning services to make your retirement even easier. For our clients enjoying sun and sand in Boca Raton, Florida, the team at Herman & Company CPA’s, PC provides integral support to ensure the relaxation and peace of mind that you deserve.

Retirement planning for Boca Raton

Herman & Company CPA’s, PC offers accounting services for both retirees and those planning for retirement. Wise retirement planning is all about preparation and taking stock of your portfolio! We have a well-deserved reputation for saving clients money and looking to the future to ensure optimal returns every year. As trusted financial advisors, we work with our clients to create individualized strategies to safeguard their portfolios. We take pride in navigating the complex world of taxes to save our clients time, money and undue stress.

Bright futures for Florida retirees

How you manage your investments and savings will determine the quality of your lifestyle after your retire. However, these decisions don’t need to be made alone; with offices in New York and Florida, Herman & Company CPA’s, PC is committed to helping our clients afford a lifetime of financial stability. With our personalized touch, advanced accounting tools, and up-to-date knowledge of economic trends and policy changes, we help our clients protect their savings and investments.

Retirement planning should be easy, but the complicated world of financial policy can cause unnecessary stresses and lost savings. With over thirty years of experience, the team at Herman & Company CPA’s, PC has successfully guided hundreds of clients through annual taxes and wise financial planning decisions, always with the same mission: to provide our clients with personalized support and financial stability. 

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.