We Answer Your Retirement Questions
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What is the main topic discussed in this episode?
Here's your Money Briefing. I'm J.R. Whalen at The Wall Street Journal in New York.
When did Congress change retirement rules and why should savers care?
Late last year, Congress overhauled the rules for retirement accounts, and that raised lots of questions among savers and retirees. Wall Street Journal subscribers sent in all sorts of questions about different aspects of the new rules. like required withdrawals from IRAs and how to leave an IRA to your heirs.
In some cases, some of these trusts are going to have to liquidate the asset within a decade, which means that the very people, the heirs, who you're trying to prevent from getting their hands on all the money are going to get their hands on all the money within a decade.
Wall Street Journal reporter Ann Turgason tackles your retirement questions. That's next.
Retirement plans saw some significant changes after Congress passed new law last year, and Wall Street Journal subscribers had plenty of questions about it. Journal reporter Anne Turgason is here with answers. So, Anne, there are a lot of questions regarding tax-deferred retirement accounts, specifically the deadlines involved with required minimum distributions or RMDs.
Who is affected by the new RMD age and how do birthdate cutoffs work?
There is a change in the law that allows people to start their RMDs at age 72 rather than the old rules were age 70 and a half. But that doesn't apply to everybody. So a lot of readers are wondering, you know, does this apply to them? Probably the simplest way to think about it is if you were born after June 30th, 1949, you can wait to age 72 to start your RMDs. However, if you were born before July 1st, 1949, you have to stick to the old rules, which means starting at age 70 and a half.
And then how about the second required minimum distribution you have to take?
Right. So people are also wondering, you know, what's the deadline? If I qualify to start at age 72, when do I have to take my first RMD and when do I have to take my second RMD? And the answer is that it actually adheres to the same pattern as with the old rules for starting at age 70 and a half.
When must I take my first and second RMDs if I qualify to start at 72?
So it's a little, sounds a little technical, but basically what you do is you have to start by April 1st of the year 40. following the year in which you turn 72. So for example, if you turn 72 in 2022, you have to take your first RMD by April 1st of 2023. The second RMD is due in that same year. So you would have to take a second RMD in this example by December 31st. of 2023. So you can take them both in the same year. Obviously, for some people, that's not ideal because that's going to put you into a higher tax bracket. So if you want to voluntarily take the first RMD in the year in which you turn 72, 2022, in the example I was saying, that's fine too.
December's legislation from last year also eliminated the stretch IRA. And with that going away, what are some alternatives for people who want to leave assets for their heirs?
Right. So first of all, the stretch IRA is not going away for everybody. If you inherited an IRA from someone who died from January 1st of this year on, then you're sort of out of luck. You then have to adhere to this new 10-year rule to liquidate the account. People who inherited from people who died previous to, you know, 2020, they still get to stick with the stretch IRA. You know, if you've already inherited it and you're, you know, before January 1st of this year, you're fine. You don't have to worry.
Just refresh us with the stretch IRA is.
Right. So the stretch IRA is a really beneficial arrangement by which if you inherited an IRA, again, before this year, heirs are required to also take required minimum distributions.
How did the law eliminate the stretch IRA and who still keeps it?
So you could take your required minimum distribution for that account based on your own life expectancy. So say you inherit and you're like 25 years old. you're going to have a pretty long life expectancy. So that's only if you're going to adhere to taking RMDs on your life expectancy, you're only going to have to take out a small amount every year. And the benefit to that is that it allows more of the money to stay in the account and continue to grow on a tax advantage basis.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:05–0:09
2
When did Congress change retirement rules and why should savers care?
0:09–1:15
3
Who is affected by the new RMD age and how do birthdate cutoffs work?
1:15–2:10
4
When must I take my first and second RMDs if I qualify to start at 72?
2:10–3:56
5
How did the law eliminate the stretch IRA and who still keeps it?
3:56–6:16
6
What alternatives can owners use now to pass wealth to heirs besides IRAs?
6:16–8:57
7
How do trusts and amended trust terms interact with the new 10-year rule?
8:57–9:03
Speakers
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