Klitzman Law Group, PLLC

How are Capital Gains in Irrevocable Trust Taxed?

“Investors use irrevocable trusts to protect their assets from creditors, lawsuits and estate taxes. However, when you sell a home in an irrevocable trust, that can complicate your tax situation.”

Putting a home in an irrevocable trust may be done to protect the house from estate taxes, explains a recent article from Yahoo! Life titled “Do Irrevocable Trusts Pay the Capital Gains Tax?” However, what effect does this have on capital gains taxes?

An irrevocable trust is used to protect assets. Unlike a revocable trust, once an asset is placed within the trust, it’s difficult to have the asset returned to the original owner. The trust is a separate legal entity and has its own taxpayer identification number.

Assets moved into a trust are permanently owned by the trust, until the trustee distributes assets to named beneficiaries or their heirs. Irrevocable trusts are often used to protect assets from litigation.

Capital gains taxes are the tax liabilities created when assets are sold. Typical assets subject to capital gains taxes include stocks, homes, businesses and collectibles. Capital gains taxes are usually lower than earned income taxes. For example, the top federal income tax rate is 37%, and the top capital gains tax rate is 20%. A single investor might pay no capital gains taxes if their taxable income is $41,675 or less (in 2022). Married copies filing joining also pay 0% capital gains if their taxable income is $83,350 or less.

Irrevocable trusts are the owners of assets in the trust until those assets are distributed, including any earned income. While it would seem that the irrevocable trust should pay taxes on earned income, this is not necessarily the case. If irrevocable trusts are required to distribute income to beneficiaries every year, then that makes the trust a pass-through entity. Beneficiaries pay taxes on the income they receive from the trust.

Capital gains are not considered income to such an irrevocable trust. Instead, any capital gains are treated as contributions to principal. Therefore, when a trust sells an asset and realizes a gain, and the gain is not distributed to beneficiaries, the trust pays capital gains taxes.

One of the tax benefits of home ownership is the ability to avoid the first $250,000 in capital gains profits on the sale of the home. For married couples filing jointly, the exemption is $500,000. The home must be a primary residence for two of the last five years.

What happens if you transfer your home to an irrevocable trust as part of your estate planning? Who pays the capital gains tax on the sale of a home in an irrevocable trust? Remember, the trust is a legal entity and not a person. The trust does not receive the $250,000 exemption.

Placing a home into an irrevocable trust can protect it from creditors and litigation, but when the home is sold, someone will have to pay the capital gains on the sale. Although irrevocable trusts are great for distributing assets to beneficiaries, they are also responsible for paying capital gains taxes.

An experienced estate planning attorney will help you to determine which is more important for your unique situation: protecting the home through the use of an irrevocable trust or getting the tax exemption benefit if the home sells.

Reference: Yahoo! Life (July 7, 2022) “Do Irrevocable Trusts Pay the Capital Gains Tax?”

Can Estate Planning Reduce Taxes?

“Upstream basis planning is a trust strategy that can save wealthy people on their capital gains taxes and income taxes associated with highly appreciated assets.”

The estate tax exemption won’t always be so high. The runup in housing prices may mean capital gains taxes become a serious issue for many people. There are solutions to be found in estate planning, including one known as an “Upstream Power of Appointment” Trust, as explained in the article “How to Use Your Estate Plan to Save on Taxes While You’re Still Alive!” from Kiplinger.

The strategy isn’t for everyone. It requires a completely trustworthy, elderly and less wealthy relative, such as a parent, aunt, or uncle, to serve as an additional trust beneficiary. First, here is some background information:

Basis: This is the amount by which a price is reduced to determine the taxable gain. This is often the historical cost of an asset, which may be adjusted for depreciation or other items. Estate planning attorneys are familiar with these terms.

Step-up (in-basis): If you bought a house for $100,000 and sold it for $400,000, your taxable gain would be $300,000. However, if the house had belonged to your father and was being sold to distribute assets between you and your siblings, the basis (cost) would be increased to the fair market value at the date of your father’s passing. This increase is known as the “step-up in basis” and here’s the benefit: there would be no capital gain on the sale and no taxes owed.

Lifetime estate tax exemption: This is currently at $12.06 million per person or $24.12 for married couples. This is the amount of assets which can be passed to children or others free of any federal estate tax. However, the number will take a deep dive on January 1, 2026, when it reverts back to just under $6 million, adjusted for inflation. Plan for the change now, because 2026 will be here before you know it!

Upstream planning involves transferring certain appreciated assets to older or other family members with shorter life expectancies. Since the person is expected to die sooner, the basis step-up is triggered sooner. When the named person dies, you obtain a basis step-up on the asset, saving income taxes on depreciation and saving capital gains on a future sale of the property.

Most Americans aren’t worried about paying estate taxes now, but no one wants to pay too much in income taxes or capital gains taxes.

To make this happen, your estate planning attorney will need to give an elderly person (let’s say Aunt Rose) the general power of appointment over the asset. Section 2041 of the Internal Revenue Code says you may give your Aunt Rose a power to appoint the asset to her estate, creditors, or the creditors of her estate. Providing the power will include the value of the property in her estate, not yours, ensuring the basis step-up and income tax savings.

Don’t do this lightly, as a general power of appointment also gives Aunt Rose ownership and the right to give the property to herself or anyone she wishes. Can you protect yourself, if Aunt Rose goes rogue?

While the IRC rule doesn’t require Aunt Rose to get your permission to control or change distribution of the property, a trust can be crafted with a provision to effectuate the desired result. The IRC doesn’t require Aunt Rose to know about this provision. This is why the best person for this role is someone who you know and trust without question and who understands your wishes and the desired outcome.

Proper planning with an experienced estate planning attorney is a must for this kind of transaction. All the provisions need to be right: the beneficiary need not survive for any stated period of time, you should not lose access to the assets receiving the basis increase, you want a formula clause to prevent a basis step down if the property or asset values fall and you want to be sure that assets are not exposed to creditor claims or any other liabilities of the person holding this broad power.

Reference: Kiplinger (July 3, 2022) “How to Use Your Estate Plan to Save on Taxes While You’re Still Alive!”

Do You Lose Benefits If You Retire Early?

“Claiming Social Security before full retirement age (FRA) has consequences–namely, that you'll get stuck with a lower monthly benefit for life.”

Not everyone retires because they want to. A lost job, serious illness or large life change could put you into an early, unwanted, retirement. A recent article from USA Today titled “Forced to retire early? 3 things you can do to put off filing for Social Security” explores the options.

The first thing most people think of is taking Social Security benefits before Full Retirement Age (FRA), which has long-term consequences. The idea seems logical: by taking benefits, you’ll protect your retirement nest egg. However, you’ll receive a lower monthly benefit for life. Instead, consider a few alternatives.

Pursue a part-time job. If finding a full-time job doesn’t work, or if you aren’t physically or mentally able to work full time, a lower-stress part time job could fill in the financial gaps. Employers are eager to find qualified workers, in all kinds of workplaces. You might score a remote part-time job, which would be ideal if mobility is an issue. You may prefer a position where you interact with the public, like the greeter at big box stores. If you’re savvy enough to score a high paycheck, you might be able to get by on a different income level, while letting Social Security benefits grow.

Revise your spending significantly. Take a look at your cashflow. If you’re in a hot housing market, can you sell your current home and move into smaller quarters? Does your family still need two (or three) cars? If you’re among the average Americans who dine out at restaurants several times a week, a return to eating at home could help your budgeting. How many streaming services are you paying for every week?

In some instances, you can’t cut spending, especially for medical care. However, chances are there are some cuts you can make to help trim spending and reduce the withdrawals from retirement accounts, including IRAs, SEPs or 401(k)s.

Can your home create income? Monetizing your home can take a few different forms. Today’s reverse mortgages are not the same as they were thirty years ago. Depending on how much equity you have in your home, you might find the monthly checks help avoid having to take Social Security early.

Could you take in a roommate to help with monthly bills? Obviously, this step requires a lot of thought. However, if an additional $500 would tide you over, it might be a viable option—and you may enjoy the company. There are non-profit organizations that pair seniors with roommates. There are also online apps for people to rent out their fenced backyards by the hour to dog owners who need a safe place to play with their pets.

Knowing there are options can make financial stress a little less overwhelming. Do your homework and find what works for your situation.

Reference: USA Today (June 26, 2022) “Forced to retire early? 3 things you can do to put off filing for Social Security”

Who Inherited Chadwick Boseman’s Estate?

“Without a will, many families usually fall out over their dead relatives’ assets—no matter how small or large.”

Nearly 70% of Americans still don’t have a will or living trust in place, despite all the events of the past few years, according to a survey from Caring.com published in 2022. Even more revealing, 16% don’t think they need a will by age 45. They’re making a grave mistake, for more than a few reasons.

A recent article from NBC News titled “What happened to Chadwick Boseman’s $2.3 million estate is an exception, not the rule” looks at a few different reasons why wills, trusts and estate planning in general are so important for families.

Chadwick Boseman, known for his roles in Marvel’s “Black Panther,” “42,” and other award-winning movies, knew he was very sick for many years, yet he did not have a will created. Boseman was only 43 when he died in 2020. A Gallup poll from 2021 indicated only 36% of Americans between ages 30—49 had a will detailing how they want their assets distributed after death.

When a loved one dies without a will, many families become embroiled in battles lasting years, fracturing families and breaking more than a few hearts along the way. The fights aren’t always about big money either. Even small estates can engender family feuds.

Boseman’s family is the rare exception. His widow Taylor Simone Ledward asked the court to divide his estate evenly between herself and his parents. Compared to other entertainers—Prince is a powerful example of how badly things can go—this is a relatively happy ending.

However, the Boseman case is not without significant lessons.

First, Boseman kept his private life very private. He dated Taylor Simone Ledward for years, with little of the fanfare that accompanies most Hollywood romances. He was also ill with colon cancer for several years, and few people outside of his family knew he was sick.

However, because of the lack of planning, we know a lot more about Boseman than we would if he had an estate plan. His documents became part of the public record. We know his widow had to petition the court to be named as his administrator with limited authority over his estate and filed a probate case in Los Angeles.

We also know Boseman’s estate had to pay higher court fees because there was no will, reducing his estate from $3.8 million to $2.5 million. It’s always more expensive not to have a will than to have a will.

Dying without a will means the laws of the state determine how the estate’s assets are distributed. If parents die without a will, the court will determine who will raise the couple’s children by naming a guardian. Without a will, heirs will also be forced to devote time, money and emotional energy to settle the estate.

Taking the time to have an estate plan prepared with an experienced estate planning attorney is an act of love for those you care about. It preserves your privacy, minimizes costs and allows loved ones to focus on what truly matters.

Reference: NBC News (July 1, 2022) “What happened to Chadwick Boseman’s $2.3 million estate is an exception, not the rule”

What Happens to Stock Options when Someone Dies?

“No matter what industry you might be in, what your long-term goals might be, or how your business is structured, you know that you need to be planning for the future.”

Once your business grows, so does the pressure to make good financial decisions in the short and long term. When you think about the future, estate and succession planning emerge as two major concerns. You’re not just considering balance sheets, profits and losses, but your family and what will happen to them and your business when you’re not around. This thinking leads to what seems like a great idea: transferring stock or LLC membership units to one or more of your adult children.

There are benefits, especially the ability to avoid a 40% estate tax and other benefits. However, there are also lots of ways this can go sideways, fast.

Executing due diligence and creating an exit plan to minimize taxes and successfully transfer the business takes planning and, even harder, removing emotions from the plan to make a good decision.

An outright transfer of stock or ownership units can expose you and your business to risk. Even if your children are Ivy-league MBA grads, with track records of great decision making and caring for you and your spouse, this transaction offers zero protection and all risk for you. What could go wrong?

• An in-law (one you may not have even met yet) could try to place a claim on the business and move it away from the family.
• Creditors could seize assets from the children, entirely likely if their future holds legal or financial problems—or if they have such problems now and haven’t shared them with you.
• Assets could go into your children’s estates, which reintroduces exposure to estate taxes.

No family is immune from any of these situations, and if you ask your estate planning attorney, you’ll hear as many horror stories as you can tolerate.

Trusts are a solution. Thoughtfully crafted for your unique situation, a trust can help avoid exposure to some estate and other taxes, allocating effective ownership to your children, in a protected manner. Your ultimate goal: keeping ownership in the family and minimizing tax exposure.

A Beneficiary Defective Inheritance Trust (BDIT) may be appropriate for you. If you’ve already executed an outright transfer of the stock, it’s not too late to fix things. The BDIT is a grantor trust serving to enable protection of stock and eliminate any “residue” in your childrens’ estates.

If you haven’t yet transferred stock to children, don’t do it. The risk is very high. If you’ve already completed the transfer, speak with an experienced estate planning attorney about how to reverse the transfer and create a plan to protect the business and your family.

Bottom line: business interests are better protected when they are held not by individuals, but by trusts for the benefit of individuals. Your estate planning attorney can draft trusts to achieve goals, minimize estate taxes and, in some situations, even minimize state income taxes.

Reference: The Street (June 27, 2022) “Should I Transfer Company Stock to My Kids?”

Who Should Be Your Executor?

“An executor is the person whom you name to handle the settlement of your estate after you die, taking your estate through probate, a court-supervised process that winds up your affairs in the state where you were living at the time of your death.”

While the executor is usually a spouse or close family member, you can name anyone you wish to be your executor. A bank, estate planning attorney, or professional trustee at a trust company may also serve as the executor, according to a recent article from Twin Cities-Pioneer Press titled “Your Money: What you need to know about naming an executor.”

Regardless of who you select, the person has a legal duty to be honest, impartial, financially responsible and to put your interests ahead of their own. This person and one or two backup candidates should be named in your will, just in case the primary executor declines or is unable to serve.

How does someone become an executor? When your will is entered into probate, the court checks to be sure the person you name meets all of your state’s legal requirements. Once the court approves (and usually the court does), then their role is official and you executor can get to work.

The executor has many responsibilities. You can help your executor do a better job by making sure that financial and personal business documents are organized and readily available. Here are some, but not all, of the executor’s tasks:

• Making an inventory of all assets and liabilities
• Giving notice to creditors: credit card companies, banks, mortgage companies, etc.
• Filing a final personal tax return and filing the estate tax return
• Paying any debts and taxes
• Distributing assets according to the directions in the will and in compliance with state law
• Preparing and submitting a detailed report to the court of how the estate was settled

If there is no will, or if no executor is named in the will, or if the executor can’t serve, the court will appoint a professional administrator to settle your estate. It won’t be someone you know. Your family may not like all of the decisions made on your behalf, but there won’t be any options available.

Does an executor get paid? A family member may or may not wish to be paid. However, given how much time it takes to settle an estate, you might feel it’s fair for them to be compensated. The amount varies depending on where you live, but you can leave the person between 1% to 8% of your total estate. A professional administrator will likely cost considerably more.

How do you document your estate to help out the executor? If you think this task is too onerous, imagine how a family member will feel if they have to conduct a scavenger hunt to identify assets and debts. If a professional administrator ends up doing this work, it will take a bigger bite out of your estate and leave loved ones with a smaller inheritance.

Start by making a list of all of your assets and liabilities, plus a list of all advisors who help with the business side of your life. Recent tax returns will be helpful, as will contact information for your estate planning attorney, CPA and financial advisor. You should include retirement accounts, life insurance policies and any assets without beneficiary designations.

Reference: Twin Cities-Pioneer Press (June 25, 2022) “Your Money: What you need to know about naming an executor”

How Do Special Needs Trusts Work?

“Special needs trusts can help fund quality-of-life improvements for the beneficiary, such as a phone, a trip or a private room in a group care facility.”

Parents with disabled children worry about how their offspring will manage when parents are no longer able to care for them. Leaving money directly to a child receiving means-tested government benefits, like Social Security Supplemental Income or Medicaid, could make them ineligible for these programs, explains an article from Kiplinger titled “Estate Planning: A Special Trust for a Special Need.” In most states, beneficiaries of either program are only allowed to have a few thousand dollars in assets, with the specific amount varying by state. However, the financial support from government programs only goes so far. Many families opt to have their own family member with special needs live at home, since the benefit amount is rarely enough.

The solution is a Special Needs Trust, which provides financial support for a disabled individual. The SNT owns the assets, not the individual. Therefore, the assets are excluded from asset limit tests. The funds in the trust can be used to enhance quality of life, such as a cell phone, a vacation or a private room in a group living facility. The SNT is a means of making sure that a vulnerable family member receives the money and other relatives, such as a sibling, don’t have a financial burden.

SNTs can only be created for those who are younger than age 65 and are meant for individuals with a mental or physical disability so severe they cannot work and require ongoing support from government agencies. A disabled person who can and does work isn’t eligible to receive government support and isn’t eligible for an SNT, although an estate planning attorney will be able to create a trust for this scenario also.

Each state has its own guidelines for SNTs, with some requiring a verification from a medical professional. There are challenges along the way. A child with autism may grow up to be an adult who can work and hold a job, for instance. However, estate planning attorneys recommend setting up the SNT just in case. If your family member qualifies, it will be there for their benefit. If they do not, it will operate as an ordinary trust and give the person the income according to your instructions.

SNTs require a trustee and successor trustee to be responsible for managing the trust and distributing assets. The beneficiary may not have the ability to direct distributions from the trust. The language of the trust must state explicitly the trustee has sole discretion in making distributions.

Because every state has its own system for administering disability benefits, the estate planning attorney will tailor the trust to meet the state’s requirements. The SNT also must be reported to the state. If the beneficiary moves to another state, the SNT may be subjected to two different sets of laws and the trustee will need to confirm the trust meets both state’s requirements.

SNTs operate as pass-through entities. Tax treatment favors ongoing distributions to beneficiaries. Any earned investment income goes to the beneficiary in the same year, with distributions taxed at the beneficiaries’ income tax rate. Trust assets may be used to pay for the tax bill.

As long as all annual income from the trust is distributed in a given year, the trust will not owe any tax. However, a return must be filed to report income. For any undistributed annual investment income, the trust is taxed at one of four levels of tax rates. These range from 10% and can go as high as 37%, depending on the trust income.

An SNT can be named as the beneficiary of a traditional IRA on the death of the parent. Investments grow tax deferred, as long as they remain in the retirement account and the SNT collects the required minimum distributions for the retirement account each year, with the money passing as income. However, any undistributed amount of the required distribution will be taxed at the trust’s highest tax rate.

Reference: Kiplinger (June 8, 2022) “Estate Planning: A Special Trust for a Special Need”

Estate Planning Tips for Solo Seniors

“So, what happens with your estate plans if you are not in a traditional nuclear family? There is quite a lot that can fall under the umbrella of a non-traditional family, and the recommendations will vary depending on your specific circumstances.”

The people who typically think the most about estate planning are those in a traditional nuclear family unit, with spouses, adult children, grandchildren and a clear idea of how they want to pass along assets and who can be trusted to carry out their wishes. It’s easier to plan ahead, reports a recent article titled “Elder Care: Estate planning when you are on your own” from The Sentinel, when the right person to put in charge is easy to identify.

When more and more families do not fall into the traditional nuclear family unit, how should they proceed with estate planning?

This can be a challenging scenario, especially if the person is not married and has no children. It’s hard to know who to name for important roles, like who will take charge if the person becomes ill or dies.

Some single people may think it doesn’t matter, because they don’t care about who inherits their possessions. However, estate planning is not just about distributing property. Planning for incapacity may be the most important part of estate planning—making legally enforceable decisions about medical care, end-of-life care and managing the business aspect of your life if you are incapacitated.

Two of the most important documents for a person who cannot speak for themselves are a Financial Power of Attorney and a Health Care Power of Attorney. These are the critical documents giving the person you designate the ability to manage your affairs and be involved in your medical care.

Without them, someone will need to take over for you. Who will it be? The process begins in the court, with a legal proceeding called guardianship. There are any number of reasons to avoid this. First, it takes a long time and any actions or decisions requiring a legal guardian will not be made with any speed. Second, guardianships are expensive. The process of having a guardian named and the fees paid to the guardian will be paid by you, whether you are conscious or not. While many people who act as guardians for others are trustworthy and kind-hearted, there are many horror stories—including several true stories made into movies—where guardians are more focused on enriching themselves than their ward’s best interests.

Guardianship can be easily avoided. Meeting with an estate planning attorney to prepare your last will and testament, Power of Attorney and Power of Health Care Attorney gives you control over who will be in charge of your life if you are incapacitated. Having these documents properly prepared by an experienced estate planning attorney ensures that you can be admitted to a hospital or facility offering the care you need, your bills will be paid and if your situation requires filing for long-term care benefits or disability, someone can do it for you.

If you don’t have a spouse or children, you probably have a healthy network of friends and extended family members you trust and are your “family by choice.” If you don’t feel these people are trustworthy or capable, think further afield—someone from your community, a neighbor who you respect and trust, etc.

If possible, name a few people in succession (your estate planning attorney will know how to do this) so if one person cannot serve, then there will be a next-in-line to help.

The next step is to speak with these individuals and explain what you are asking them to do. They need to be comfortable with the responsibility you’re asking them to undertake. You’ll also want to tell them your wishes, perhaps drafting a letter of intent, so they will know what to do in different circumstances. Make sure they know where these documents are located, so they can find them easily.

Once your estate plan is in place, you’ll breathe a sigh of relief, knowing the future is taken care of.

Reference: The Sentinel (June 17, 2022) “Elder Care: Estate planning when you are on your own”

Do You Want to Be an Executor?

“Only you know your capacity and willingness to serve, or the degree of need expressed by the person asking you. However, it should help to know first that if you do decide to accept, there can be help out there and second there are standard procedures and practices you can follow.”

Taking on the role of executor should be considered carefully before accepting or refusing. These decisions are usually made based on relationships and willingness to help the family after a loved one has died. Knowing certain processes are in place and many are standard procedures may make the decision easier, according to the useful article “Planning Ahead: Should you agree to serve as an executor?” from Daily Local News.

A family member or friend is very often asked to serve as executor when the surviving spouse is the only or primary beneficiary and not able to manage the necessary tasks. In other instances, estates are complex, involving multiple beneficiaries, charities and real estate in several states. The size of the estate is actually less of a factor when it comes to complexity. Small estates with debt can be more challenging than well-planned large estates, where planning has been done and there are abundant resources to address any problems.

Prepare while the person is alive. This is the time to learn as much as you can. Ask to get a copy of the will and read it. Who are the beneficiaries? Speak with the person about the relationships between beneficiaries and other family members. Do they get along, and if not, why? Be prepared for conflict.

Find out what the person wants for their funeral. Do they want a traditional memorial service, and have they paid for the funeral already? Any information they can provide will make this difficult time a little easier.

What are your responsibilities as executor? Depending on how the will is prepared, you may be responsible for everything, or your responsibilities may be limited. At the very least, the executor is responsible for:

• Locating and preparing an inventory of assets
• Getting a tax ID number and establishing an estate account
• Paying final bills, including funeral and related bills
• Notifying beneficiaries
• Preparing tax returns, including estate and/or inheritance tax returns
• Distributing assets and submitting a final accounting

If the person has an estate planning attorney, financial advisor and CPA, meeting with them while the person is alive and learning what you can about the plans for assets will be helpful. These three professional advisors will be able to provide help as you move forward with the estate.

These tasks may sound daunting but being asked to serve as a person’s executor demonstrates the complete trust they have in your abilities and judgment. Yes, you will breathe a sigh of relief when you complete the task. However, you’ll also have the satisfaction of knowing you did a great service to someone who matters to you.

Reference: Daily Local News (June19, 2022) “Planning Ahead: Should you agree to serve as an executor?”

RMD Formula Changes for First Time in 20 Years

“The IRS has good news for retirees: you can now keep more money in your tax-deferred retirement accounts thanks to lower required minimum distributions (RMDs).”

For the first time in two decades, the IRS has updated actuarial tables used to determine Required Minimum Distributions, the amount taxpayers are required from their retirement accounts starting at age 72, reports Yahoo! Money in the article “Good News for Retirees: RMD Formula Changes for First Time in Decades.”

The new tables rely on longer lifespans to calculate RMDs from tax deferred accounts, including traditional IRAs, 401(k)s and other similar retirement accounts every year.

One of the key benefits of retirement accounts are the tax advantages they offer. Traditional IRAs and 401(k)s allow savers to defer taxes until funds are withdrawn, letting their investments grow over an extended period of time. However, as with all good things, there are limits. To encourage people to take funds from the accounts (which generate tax revenues), the IRS requires a certain amount of money be taken out after a certain age.

The age requirements have changed over the years. Before the SECURE Act of 2019, withdrawals were required starting at age 70.5. After the SECURE Act, if you reached age 70.5 in 2019, the prior rules applied, and you had to take the first RMD by April 1, 2020. However, if you reached 70.5 in 2020 or later, the first RMD needs to be taken by April 1 in the year after you reach age 72.

Here are the accounts subject to RMDs:

• Traditional IRAs
• SEP IRAs
• SIMPLE IRAs
• 401(k), retirement plan from private sector employers
• 403(b), retirement plan for public employees and nonprofits
• 457(b), retirement plan for some state and local government employees

Profit sharing plans and other defined contribution plans are also included in this category. Roth IRAs are not subject to RMDs.

With the IRS raising the average life expectancy from 82.4 to 84.6, retirees will also need to make their retirement savings account last longer. Therefore, the RMDs starting in 2022 will be less than those from the prior calculation, which has been the same since 2002. Smaller RMDs will also lower tax liabilities and might even put some people into a lower tax bracket.

You can still withdraw as much as you like from an IRA or the accounts listed above. However, be mindful of the resulting tax bill.

Reference: Yahoo! Money (June 15, 2022) “Good News for Retirees: RMD Formula Changes for First Time in Decades”