Despite Recent S&P Losses of Nearly 25%, Federal Government Still Requires Retirement Withdrawals

The S&P is down almost 25% by September of 2022; some indices are down over 30%. Even so, most retirees 72+ years of age are still forced to take required minimum distributions (RMDs) from their retirement accounts.

Without stopgap legislation to halt that rule, Federal law demands that withdrawals proceed regardless of retirees’ concerns about the real loss to their current IRA values.

Mr. Cash is the owner and principal associate of Donald W. Cash & Associates Inc., a firm that specializes in managing exactly these sorts of client investments. He recently contributed to an article in The Wall Street Journal, focusing on recent IRA news.

“There are a lot of financial landmines out there for IRA owners and this recent market plunge, paired with federal RMD mandates, is just the latest one,” said Mr. Cash.

“The main source of concern has to do with IRS rules governing these IRAs, because RMDs are all taxed based on values from the previous year. Since these IRAs have taken a severe hit this year, that means their value is far less now than in 2021. Retirees are literally being taxed on a previous IRA value that is no longer there.”

“To give an example of what this looks like for a typical retiree: for an 80-year-old taxpayer with a $1 million account at the end of 2021, a 15% dip in value and a $50,000 required distribution would reduce his account balance to approximately $800,000. That’s a major loss.

As of now, there is no pending legislation to stop this, like the RMD waivers we saw during the financial crises of 2009 and the pandemic relief of 2020. So regrettably, retirees are just going to have to grit-their-teeth and absorb this loss.”

“But there are some ways of mitigating this, like converting IRA money to a Roth IRA account,” said Mr. Cash.

“An account owner would essentially be moving shares from her IRA account to the Roth IRA at depressed values, paying an income tax at that value and when the values recover in the Roth IRA. They are tax free and NOT subject to the required minimum distribution at any age.”

“In addition to this bad news regarding RMDs, retirees also face other pitfalls around their IRAs. The primary one we often hear from new clients at my firm is confusion around the age that people are required to take these RMDs. The rules and proposed changes have shifted multiple times.

In addition, the heirs and beneficiaries of IRA accounts face more complex regulations that confuses them and account owners, and rightly so.”

“It’s all a real slog for average investors to understand. Which is why we cannot stress this often and firmly enough: financial markets and retirement planning are extremely complex, often it might seem, by design. So, it is absolutely in your best interest to learn as much as you can, and crucial that you consider securing the services of a qualified financial planner.”

Learn more about investment markets, IRAs, Medicare news, and other important financial topics by listening to Donald Cash’s regular podcast “Your Money and Your Life.

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Hi! I am a millennial mom with a passion for personal finance. I have always been “into” personal finance but got inspired to start my blog after a period of extended unemployment. That experience really changed the way I viewed my relationship with money and the importance of accessible personal finance education.