New Retirement Rule Delaying Withdrawals Could Bite

Wealthy retirees seem to have scored big in Congress’ sweeping year-end spending package.

The legislation signed by President Joe Biden Thursday includes changes to retirement plans that will push up the age people are required to start withdrawing from their IRAs and 401(k)s to 73 next year from the current 72, and extend it to 75 in 2033.

That's a boon to those who don't need the money (retirement behemoth Vanguard estimates some 25% of its clients don't take money from retirement accounts until they’re forced), because every additional year allows those investments to continue growing tax-free.

But just because you can delay doesn't mean you should. If you’re fortunate enough to not need the money in your retirement accounts for living expenses, you should still weigh the implications for your taxes, heirs and Medicare premiums before you decide to wait until the deadline.

How much the Internal Revenue Service requires you to take out each year is based on account balances and age. Holding off will likely result in bigger required withdrawals and potentially heftier tax hits when you do finally start taking money out. (If you have a 401(k), be sure you know what your own plan requires, as employers may have different guidelines for distribution.)