In today's rapidly changing society and as the human race advances through generations we observe many changes that need to be made in our rules and regulations. The field of finance is a prime example of this but some times it takes a disaster to prompt lawmakers to make rule changes e.g. Enron's unethical behavior leading to a large loss in their employees retirement funds (leading to law changes in the holding period of company stock). This article discusses the new rule changes that are taking place in relation to IRAs, 401(k)s.
The IRS has made new rules and they involve the reduction in the required minimum withdrawal at the age of 70 ½. The new rule means that you don't have to take out as much at retirement therefore allowing you to keep more in reserve until these funds are really needed. The changes have come about due to the fact that Americans now have a longer life expectancy than before. .
These changes are great news for people who are retiring or currently retired for a number of reasons. First it is less likely that a person will withdraw too little therefore avoiding the 50% tax on the amount they failed to withdraw. A fifty- percent tax rate is a hefty penalty to be hit with and hopefully now fewer people will experience this tax punishment. Secondly, having the ability to leave more money in the retirement account will allow postponement of income tax on withdrawals and maximize the benefits of tax-deferred compounding. This concept of compounding on a tax deferred basis and it's great advantages is highlighted throughout our course and that is why I feel this is great news for people who have traditional IRAs, 401(k)s. .
The article is accompanied with a very easy to use table, which is another advantage of the change as it has simplified the rule. I liked this article as it is good news for the taxpayer and shows that the IRS is willing to make changes in today's rapidly changing environment.
