IRA distributions made before RMD date larger than those of older households, EBRI finds

Americans between the ages of 61 and 70, who are withdrawing money from their individual retirement accounts (IRAs), are making withdrawals that are larger, both in absolute dollar amounts and as a percentage of their IRA account balance, than those taken by older households, according to a new report from the Employee Benefit Research Institute (EBRI). This is true despite the fact that account holders are not required to start taking minimum distributions from their IRAs until the year following the year in which they attain age 70 1/2. The study is based on data from the University of Michigan’s Health and Retirement Study (HRS), sponsored by the National Institute on Aging, considered the most comprehensive national survey of older Americans.

The EBRI report also found that low-income households were far more likely to make an IRA withdrawal—and to withdraw a larger percent of their account balance—than higher-income families. Households between ages 61 and 70 are also more likely to spend the money than save it, and they are depleting other sources of savings simultaneously. Additionally, among households between ages 71 and 80 that are subject to required minimum distributions (RMDs), those that had a withdrawal exceeding the RMD amount had average withdrawal amounts that were more than double the amounts taken by those that withdrew only the RMD amount.

“There are important questions of concern for policy makers and retirement solutions industry,” noted Sudipto Banerjee, EBRI research associate and author of the report. “Individuals above age 70 1/2 are required to withdraw stipulated amounts from their traditional IRAs to avoid tax penalties. But do they simply transfer the money to other forms of savings after paying the taxes or do they spend the money? These are some of the questions that this study tries to explore.”

Source: EBRI press release PR 1025, May 15, 2013.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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