If you have money in a traditional IRA or 401(k), you probably already know that eventually you'll have to take that money out and pay taxes on it. But the rules for taking required minimum distributions have always been confusing, especially because they require you to start tapping your accounts based on your half birthday — age 701/2.

On May 23, the House of Representatives passed a bill that would simplify the rules and give your savings a little more time to grow tax-deferred. The Senate is considering a similar bill.


The Setting Every Community Up for Retirement Enhancement act would raise the RMD age to 72 and allow people of any age who have earned income to contribute to traditional IRAs. The changes would be particularly helpful for the growing number of people who are working into their seventies, says Ed Slott, founder of IRAHelp.com.

Under current law, you can't contribute to a traditional IRA after age 701/2. If you meet the income limitations for 2019 and have earned income, you can make a maximum contribution of $6,000 to a Roth IRA if you're under 50 and up to $7,000 if you're 50 or older. For 2019, the modified adjusted gross income for singles must be less than $137,000.

The proposed change would allow older workers who earn too much to contribute to a Roth to put money in a traditional IRA, which they could then convert to a Roth, Slott says. If that is their only traditional IRA, they would only owe taxes on any earnings when they convert, and the money would grow tax-free after that. (The tax situation is more complicated if you own additional traditional IRAs.)

Retirees may be less enthused about a provision in the bill that would generally require children and other non-spouse beneficiaries to withdraw money from an inherited IRA within 10 years.

Now, those beneficiaries can spread withdrawals over their life expectancy and stretch out taxes on the money (spouses can roll an inherited IRA into their own IRA and delay withdrawals until they take RMDs).

The House bill passed with bipartisan support. If the bill passes in the Senate, it will be the first major legislation affecting retirement plans in more than a decade.

Kimberly Lankford is a contributing editor to Kiplinger's Personal Finance magazine. Send your questions and comments to moneypower@kiplinger.com.