Exchanging Social Security Benefits for an RMD Deferral Option? A New Idea Surfaces. - kiplinger.com

As the rhetoric on fixing Social Security’s solvency problem pickS up steam, so does the emergence of new and creative approaches to reforming the system. In a post today on Kiplinger.com, contributor Chris Heerlein advances a suggestion that deals with the related problem many retirees have with respect to required minimum distributions (RMDs) from tax-deferred retirement accounts, and describes a solution that could allow for deferral of RMDs in exchange for Social Security benefits.

As Heerlein explains in his post, which you can read in full here, the tax consequences of RMDs many upper-income retirees face tend to outweigh the value of their Social Security benefits, so having the option of excluding the mandatory RMDs from current income and, in exchange, opting out of receiving Social Security Benefits would improve their cash flow position. At the same time, if a significant number of folks elected to opt out of Social Security, the program’s long-term solvency situation could be significantly strengthened.

The proposal outlined by Heerlein in his post is called the RMD Option (The Option) Act and can be viewed as a “double-deferral” approach to managing retirement finances. It would be purely optional, and would likely be attractive to “…individuals age 70 and older who receive Social Security payments and have taxable income above $100,000, consisting primarily of RMDs and Social Security payments.” It would, in effect, represent a choice between lower net taxes and the “safety” of Social Security’s consistent payment stream.

Either way, RMD Option Act is thought-provoking and indicative of the kind of creative thinking needed to deal with the Social Security solvency problem. There will likely be many more innovative ideas emerging as the 118th Congress focuses on the program’s long-term future.

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