A significant change has been made in the rules for required minimum distributions from retirement plans, and these changes can be helpful in the wealth and income planning process for many people.
Required minimum distributions apply to several types of retirement plans, including qualified retirement plans satisfying the rules of Section 401(a) of the Internal Revenue Code of 1986, Section 403 annuities, Section 408 individual retirement accounts and Section 457 deferred compensation plans. A characteristic linking all of these types of arrangements is that there is a deduction or exclusion for contributions made to them, and their growth, through investment of contributions, enjoys a deferral of income tax. As a result, there is a substantial deferral of income tax liability on the contributions and the income earned on them. Calculations have been made to demonstrate that this tax deferral regime is one of the largest tax expenditures provided by the code. Intuitively, it seems clear that the longer the day of tax payment can be postponed, the more favorable the situation for the taxpayer and the less favorable to the tax collector.
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