With the S&P 500 hitting a record high in January, account balances have also reached new highs — and while that may mean a bigger nest egg for some, it could lead to higher taxes and surcharges for older retirees required to withdraw from pre-tax retirement accounts every month.
These withdrawal requirements, called required minimum distributions (RMDs), mean that rising account balances lead to larger withdrawals and, in turn, greater taxable income. This can push people over the age of 72 into a higher income tax bracket or trigger the net investment income tax of 3.8% on returns from interest, dividends and capital gains. Such thresholds can come as an unwelcome surprise — especially for retirees who have more income than they need.
