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Commentary

Could the Government Take the Bite Out of RMDs?

Maybe, but "tax-deferred account" starts with "tax" for a reason.  

Affluent retirees love to complain about required minimum distributions, and it's easy to understand why: No one likes a requirement to take money they do not need out of their 401(k) and IRA accounts. That's particularly true for retirees who are bumped into higher marginal tax rates due to these withdrawals, especially when these RMDs increase the percentage of Social Security benefits that are subject to taxation.

My Morningstar colleagues have written about this over the years and have some strategies for how to minimize the RMD bite. Even with these strategies, there is no way to avoid the fact that RMDs are the other side of the tax-deferred account bargain. Savers enjoyed tax benefits when they contributed and as their accounts (hopefully) grew, in retirement the government would like to collect deferred part of the tax.

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