RMD will be a heavy burden on those who delay it

Retirees who postponed taking the required minimum for this year
Dividends (RMDs) from 401(k)s and individual retirement accounts face a bitter task before the end of the year: withdrawing assets when portfolio values ​​shrink.

The average 60/40 portfolio — a common allotment to retirees of 60% in stocks and 40% in bonds — is down about 25% as of mid-October. RMDs are calculated based on account values ​​at the end of the previous year. So the amount that investors will have to withdraw will seem inflated relative to their checking account values.
“People often defer RMDs to allow their assets to continue to grow tax-deferred like
For as long as possible, but waiting this year could mean an even bigger increase in account value,” says Stephen A. Baxley, Bessemer’s head of tax and financial planning. “You would have been better off taking RMDs earlier this year.”
The tax code requires investors with 401(k)s, IRAs, and other tax-deferred retirements
Accounts begin taking annual withdrawals after age 72. The required annual distribution is calculated by dividing the account’s value at the end of the previous year by the life expectancy that the IRS publishes based on current age.
Distributions are mandatory whether or not you need money to live on, and
They are subject to income tax rates in the year in which they are taken.
Consider the potential negative impact of postponing RMD this year, assuming
An investor account in a 60-40 portfolio. The 74-year-old investor, whose IRA assets were valued at $500,000 at the end of 2021, will have to earn $19,607 this year. If he had taken it on January 1, his account would have been left with $480,393. After declining 25% this year, the IRA will currently be worth just under $360,295.

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Originally published at San Jose News Bulletin