Delaying RMDs would have minimal tax impact, study finds

TIAA Institute research paper finds that even eliminating RMDs would have little effect on government revenues and says the effect on retirees depends on whether they have a bequest motive.

Pushing back the age at which people must start to take required minimum distributions from retirement accounts would have little impact on their financial behavior during their working years, a mixed impact on retirees and little effect on government tax revenues, according to research conducted for the TIAA Institute.

The study, by researchers at Goethe University in Germany and the University of Pennsylvania, found that some effects of changing the RMD age would be seen during the years in retirement, depending on whether or not the retiree has a bequest motive.

“For households having a bequest motive, the former age-70.5 RMD rule was quite restrictive, since such a household would prefer to make fewer withdrawals than required and use the 401(k) plans as a tool to transfer financial wealth to the next generation. Raising the RMD age to 72 postpones account withdrawals, and defers taxes for a time,” the research report stated.

But it noted that households having a bequest motive pay more income taxes in old age than those without that motive. For households without a bequest motive, researchers said little likely would change.

Even if the RMD rule were eliminated, tax revenues would change little on average, the researchers found, despite leading to lower tax payments for the highest 1% of taxpayers.

The SECURE Act, passed in late 2019, boosted the age at which individuals must start to take distributions from retirement accounts to 72 from 70½. Legislation has been proposed in Congress that would raise the age again, to 75.

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