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The $10 trillion shift

A monumental transfer of funds totaling hundreds of billions of dollars is now underway

according to a recent article in the Wall Street Journal (Jan. 17, 2017 by Vipal Monga and Sarah Krouse).  The IRS requires that taxpayers must begin withdrawing funds from IRA and other tax sheltered accounts when they reach age 70 ½.  The first wave of Boomers, generally defined as those born between 1946 and 1964, turned 70 ½ last summer and must therefore begin required minimum distributions (RMD) starting in 2017.

The article states that “Boomers hold roughly $ 10 trillion in tax-deferred savings accounts, according to an estimate by Edward Shane, a managing director at Bank of New York Mellon Corp.”  These funds will be taxable in the year withdrawn resulting in billions of dollars of tax revenue to the U.S. Treasury for the next several years.

The first distribution must take place by April 1 of the year following the year the taxpayer reaches age 70 ½.  They must be taken by December 31 each year thereafter.  The RMD is calculated based on the individual’s life expectancy determined from IRS tables.   The penalty for not taking RMDs is 50% of the funds required to be taken out so be sure that this is not missed.  A special rule allows someone to contribute up to $ 100,000 of IRA funds to charity.  These funds are not included in taxable income or allowed as a charitable deduction and they would count towards your RMD for that year.

As this huge shift of resources takes place, it is important for baby boomers to include an allowance for future tax liabilities when calculating their net worth and planning for retirement.  Otherwise, the tax bill will come as an unwelcome surprise.

 

David K. Raye, CPA, P.C.

704-887-5298

www.davidrayecpa.com

 

*The information in this blog post is general in nature and not intended as specific advice.  Please consult a tax advisor to see how this information applies to your specific situation. 

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