Several previous postings (“Government Steps in to Help Us Again”, January 21, 2019, “Government Mandate to Help Ourselves”, May 2, 2019) have lamented the duplicative efforts of numerous states to initiate programs that will purportedly address the looming retirement crisis in the United States. At present, Oregon, California, Illinois, Connecticut, Maryland, and Massachusetts have efforts at various stages of implementation that seek to cause more individuals to prepare for their own retirements. Most programs have a degree of “coercion” imposed on the employer and usually rely on a mandatory payroll deduction strategy to channel the payroll dollars into the state-sponsored program. While each of the state plans can be credited with having a worthwhile objective, none have introduced anything that hasn’t previously been available at the federal level, in some cases for as long as forty years. Individuals merely had to exercise some personal initiative by opening an IRA with a private financial services firm.
The Required Minimum Distribution (RMD) rules for traditional IRA’s and employer sponsored retirement plans (401k’s, 403b’s etc.) have been a headache for senior citizens since their inception. These rules “force” the account owner to take annual distributions that meet or exceed a calculation based on age and the previous year-end account balance. Never one to be accused of embracing simplicity, the IRS requires the possible use of multiple different life expectancy tables, depending on the marital status of the account owner, the age of a beneficiary spouse and the relationship of the primary beneficiary to the original account owner. Failure to satisfy the RMD brings a severe tax penalty of 50% of the amount that was supposed to be withdrawn, in addition to the normal income taxes that would be assessed on the distribution. Needless to say, senior citizens do not want to run afoul of the RMD rules!