Bill Overview
Title: To amend the Internal Revenue Code of 1986 to temporarily suspend required minimum distribution rules for certain retirement plans and accounts.
Description: This bill suspends in 2020 and 2022 the required minimum distribution rules for defined contribution retirement plans or individual retirement plans. Under current law, participants in tax-exempt retirement plans must begin making distributions of plan amounts at the required beginning date (i.e., April 1 or the calendar year following the later of the calendar year in which the employee attains age 72, or the calendar year in which the employee retires).
Sponsors: Rep. Davidson, Warren [R-OH-8]
Target Audience
Population: People with defined contribution retirement plans or IRAs
Estimated Size: 30000000
- The legislation targets individuals with defined contribution retirement plans or individual retirement accounts (IRAs).
- These individuals are typically located in countries with similar retirement savings structures to the United States, predominantly in North America and parts of Europe and Asia.
- Globally, the prevalence of 401(k)s and similar defined contribution plans is growing, especially in developed nations.
Reasoning
- The policy primarily benefits retirees who are required to take minimum distributions from their retirement accounts. By suspending required minimum distributions (RMDs) for certain years, affected individuals can potentially defer taxes and allow their retirement savings to grow longer.
- Given that the policy affects only RMD rules temporarily, it will have more impact on those who rely less on distributions for daily living expenses. This is usually retirees with sufficient income from other sources or those still working.
- The population size is large, but the budget constraint of $7.5 million over 10 years limits the number of direct outreach or educational programs that can be funded. The policy itself does not require funding for implementation, making cost less of a factor for personal impact.
- Many people who are retired fully or partially rely on distributions from these plans, so the differences in impact will relate to whether the affected individuals can truly benefit by deferring withdrawals, or if they will withdraw regardless for subsistence.
- Self-reported wellbeing considers financial aspects, future security, and current lifestyle satisfaction, all of which could be marginally affected by this policy.
Simulated Interviews
retired (Florida)
Age: 74 | Gender: male
Wellbeing Before Policy: 8
Duration of Impact: 2.0 years
Commonness: 15/20
Statement of Opinion:
- Suspending RMDs allows me to keep my money invested longer, potentially benefitting my heirs.
- I don't need to take distributions because I have other income sources.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 9 | 8 |
| Year 2 | 9 | 8 |
| Year 3 | 8 | 7 |
| Year 5 | 7 | 6 |
| Year 10 | 6 | 5 |
| Year 20 | 5 | 4 |
part-time consultant (California)
Age: 68 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 2.0 years
Commonness: 18/20
Statement of Opinion:
- I appreciate having the option to defer RMDs; it helps in planning long-term.
- While I am still working, I prefer letting my savings grow tax-deferred.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 7 |
| Year 2 | 8 | 7 |
| Year 3 | 7 | 6 |
| Year 5 | 6 | 5 |
| Year 10 | 5 | 4 |
| Year 20 | 4 | 3 |
retired teacher (New York)
Age: 70 | Gender: female
Wellbeing Before Policy: 6
Duration of Impact: 0.0 years
Commonness: 14/20
Statement of Opinion:
- The policy doesn't help me as I need the distributions for living expenses.
- Uncertainty about future RMD rules adds stress.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 6 |
| Year 2 | 6 | 6 |
| Year 3 | 6 | 6 |
| Year 5 | 6 | 6 |
| Year 10 | 5 | 5 |
| Year 20 | 4 | 4 |
IT professional (Texas)
Age: 63 | Gender: male
Wellbeing Before Policy: 7
Duration of Impact: 2.0 years
Commonness: 16/20
Statement of Opinion:
- It's useful to forego mandatory RMDs for a couple of years, means I can plan better.
- I see this as a perk of retirement planning flexibility.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 7 |
| Year 2 | 8 | 7 |
| Year 3 | 7 | 6 |
| Year 5 | 6 | 5 |
| Year 10 | 5 | 4 |
| Year 20 | 4 | 3 |
retired (Illinois)
Age: 80 | Gender: female
Wellbeing Before Policy: 5
Duration of Impact: 0.0 years
Commonness: 10/20
Statement of Opinion:
- Not much from RMD anyway; it's more about security.
- I won't be affected significantly by this suspension.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 5 | 5 |
| Year 2 | 5 | 5 |
| Year 3 | 5 | 5 |
| Year 5 | 5 | 5 |
| Year 10 | 5 | 5 |
| Year 20 | 4 | 4 |
retired engineer (Ohio)
Age: 66 | Gender: male
Wellbeing Before Policy: 8
Duration of Impact: 1.0 years
Commonness: 12/20
Statement of Opinion:
- I like the flexibility it gives in my first retirement years.
- It won't change much for me financially but is appreciated.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 8 |
| Year 2 | 8 | 8 |
| Year 3 | 7 | 7 |
| Year 5 | 6 | 6 |
| Year 10 | 5 | 5 |
| Year 20 | 4 | 4 |
retired business owner (Georgia)
Age: 72 | Gender: male
Wellbeing Before Policy: 9
Duration of Impact: 2.0 years
Commonness: 11/20
Statement of Opinion:
- It's a positive financial maneuver allowing more growth.
- This aligns well with my late retirement strategies.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 9 | 8 |
| Year 2 | 9 | 8 |
| Year 3 | 8 | 7 |
| Year 5 | 7 | 6 |
| Year 10 | 6 | 5 |
| Year 20 | 5 | 4 |
recently retired healthcare worker (Washington)
Age: 65 | Gender: female
Wellbeing Before Policy: 8
Duration of Impact: 2.0 years
Commonness: 13/20
Statement of Opinion:
- Better to keep funds in IRA for bigger savings stock.
- Some support in knowing there's flexibility.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 8 |
| Year 2 | 8 | 8 |
| Year 3 | 7 | 7 |
| Year 5 | 6 | 6 |
| Year 10 | 5 | 5 |
| Year 20 | 4 | 4 |
retired (Arizona)
Age: 75 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 1.0 years
Commonness: 17/20
Statement of Opinion:
- Little effect since my distributions are necessary for living costs.
- May consider as a benefit for future savings strategy.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 7 |
| Year 2 | 7 | 7 |
| Year 3 | 7 | 7 |
| Year 5 | 6 | 6 |
| Year 10 | 5 | 5 |
| Year 20 | 4 | 4 |
semi-retired accountant (Nevada)
Age: 64 | Gender: male
Wellbeing Before Policy: 7
Duration of Impact: 2.0 years
Commonness: 15/20
Statement of Opinion:
- It's good for keeping other financial avenues open.
- A little relief from government mandates.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 7 |
| Year 2 | 8 | 7 |
| Year 3 | 8 | 6 |
| Year 5 | 7 | 6 |
| Year 10 | 6 | 5 |
| Year 20 | 5 | 4 |
Cost Estimates
Year 1: $0 (Low: $0, High: $0)
Year 2: $0 (Low: $0, High: $0)
Year 3: $5000000 (Low: $3000000, High: $7000000)
Year 5: $0 (Low: $0, High: $0)
Year 10: $0 (Low: $0, High: $0)
Year 100: $0 (Low: $0, High: $0)
Key Considerations
- The deferred tax revenue impact on federal budgets could lead to adjustments in fiscal planning, albeit minor given the size.
- While the suspension aids retirement planning flexibility for holders of defined contribution plans, it could also mean less current economic activity due to deferred spending.
- A key benefit of the policy is that it allows retirees to better manage their distributions during uncertain economic periods.