Congress Eyes Inherited IRAs

[youbet]

Typical Congress, again showing their lack of due diligence on financial matters that affect real people.......

Congress is responsible for keeping lawyers and CPA's gainfully employed. Changes such as this are not intended to go after additional revenue so much as to keep estate plans in a state of flux and the so-called professionals who prepare them busy collecting hefty fees. Would you want Congress to drop the ball by allowing rules to stay in place so that a well done estate plan might last for many years? Do you want to see the children of lawyers and CPA's standing on the corner, cup in hand, begging for a few crumbs?

Complicated rules and never ending change are essential to the ongoing employment and business plans of legal and accounting firms.

 

[james7]

The ability to inherit these things is more modern than IRA's themselves (Bush II admin, I think) - a plum given to voters by the politicians to garner votes. Taking it away will be yet another political gesture to garner votes (just flipping of sentiment from "I deserve it" to "They don't deserve it").

Such things play well to some voters. Smart on the pols part - getting voters to argue over how to tax each other while they continue to get elected and spend the tax dollars foolishly. I'm not sure who is the greater prostitute in this scenario - them that sell their governing for a continued life of privilege at taxpayer expense, or them that sell their votes for a few dollars.

Well it is nice to know that we are all prostitutes here discussing tax policy. No one has ever accused me of being one before, but I have been accused of dating a few. First time for everything, I guess. LOL

 

[Leonidas]

Well it is nice to know that we are all prostitutes here discussing tax policy. No one has ever accused me of being one before, but I have been accused of dating a few. First time for everything, I guess. LOL

I wasn't directing my writing toward anything you wrote, but if you're self-identifying I am not going to stand in your way.

My objection to the concept continues to be that when we engage in tax policy to control people's behavior we have opened a door that probably should have been left shut. Most past efforts have bounced back and forth between being loved or vilified, depending on prevailing (and ever-changing) political climate. Not to mention the number of unintended consequences that many of these policies bring on.

This current look at inherited IRAs is more of the same, and politicians are playing it for all it's worth and some voters are happily swimming along with hooks in their mouth. Meanwhile, the real issues in spending and taxation policies continue to be unresolved.

 

[devans0]

I don't like this rule. I pay relatively high taxes. I pay even more to fund my Roth IRA and Roth 401K mainly to pass to my wife, child and grandchild. As far as my family is concerned, if the IRS is going to tax this money as income, not only would this tax be a double tax, it would be a double tax at the highest possible rates on both.

 

[haha]

So, why have encourage saving in 401Ks or IRAs at all? Not enough people do that anyway, let's just punish those that do? Not sure where you are heading with this.......

I pay PLENTY of taxes, and have for MANY years........

The Cincinnati businesss daily did a poll asking if you paid more than your "fair share", your "fair share", or less than your "fair share". Contrary to all expectations, over 60 % felt they paid more than their fair share. Overall, if you pay any FIT, you are paying at least your fair share, as almost half of fllers pay zero. So why are they filing? Elementary my Dear Watson, to receive all the money that we have starting passing from taxpayers to non tax-paying filers over the last years.

 

[Koolau]

Without arguing one way or the other, those who want to "change" the current way IRAs are passed/taxed, need to understand that no tax law change takes place in a vacuum. The original law was enacted to encourage participation in qualified plans. Taking away certain advantages previously built into the system will most likely reduce the number (and $ amount) of participation. I suppose you could argue that is good or bad, but originally, more participation was thought to be a good thing as it meant far fewer folks ended up with pocket lint for a retirement.

It affects me very little as most of my inheritance will go to charity. YMMV

 

[Independent]

I would have no trouble with all the deferred taxes on my IRA being due on my final FIT return. Similarly, I'd have no trouble with my heirs paying taxes on that money in the year they inherit it. I'm in favor of simpler tax laws, and either of those would be a simplification on the current system.

For that matter, I'd be fine with getting rid of the whole alphabet soup of special tax breaks for retirement saving.

Americans have this funny notion that the taxes should be primarily about the gov't bribing it's citizens to "do the right thing". I think taxes should be about funding the gov't.

 

[Sarah in SC]

Traditional IRAs that are inherited after the decedent begins taking RMDs have to retain the same distributions, usually, unless it is a spousal rollover. And I've seen a few situations where the distribution is based on the life expectancy table of someone other than the beneficiary, when there have been disputes at the time of the estate settlement.
The conversion to a Roth has been a way for folks to go ahead and take the tax bite now, so their inheritors don't. I think that is reasonable for folks who want to do that. I imagine that taxing Roths would be a very unpopular move for our govt and therefore unlikely to occur.

 

[devans0]

I wish that I was confident of congress not passing an unpopular tax. Relatively few people avail themselves to Roth's. Thus not many voters to complain. I really expect VAT at some later date.

 

[kaneohe]

Traditional IRAs that are inherited after the decedent begins taking RMDs have to retain the same distributions, usually, unless it is a spousal rollover. .

Sarah, according to this, it seems like it would be based on the age of the beneficiary so the RMD would be different from the original owner's?
https://personal.vanguard.com/us/whatweoffer/ira/inheritediranonspousermd

 

[MichaelB]

Sarah, according to this, it seems like it would be based on the age of the beneficiary so the RMD would be different from the original owner's?
https://personal.vanguard.com/us/whatweoffer/ira/inheritediranonspousermd

Right. After the first year the beneficiaries age is used to determine the RMD.

 

[Sarah in SC]

Well, it depends. If you are one of a group of beneficiaries, you'll not be taking it under your own life expectancy, but under the oldest persons (sometimes). And for some of them, I've seen it accelerated through a court order, especially when there is some dispute as to ownership. It can get fairly complicated, and if at all possible, leave it to your spouse, which will allow them to simply put it in their own IRA accounts.

 

[MichaelB]

Well, it depends. If you are one of a group of beneficiaries, you'll not be taking it under your own life expectancy, but under the oldest persons (sometimes). And for some of them, I've seen it accelerated through a court order, especially when there is some dispute as to ownership. It can get fairly complicated, and if at all possible, leave it to your spouse, which will allow them to simply put it in their own IRA accounts.

Sometimes. If the inherited IRA is split and each beneficiary given their share in their own account, the following year each uses their own age for RMDs. Clear as mud.

 

[Sarah in SC]

Sometimes. If the inherited IRA is split and each beneficiary given their share in their own account, the following year each uses their own age for RMDs. Clear as mud.

And you wonder why I never venture to answer questions about this stuff!
Try explaining SIMPLE IRA eligibility sometimes, totally defies the imagination!

 

[ripper1]

Hopefully Congress finds something else to worry about.......... Why mess with the beneficiaries of inherited IRAs? They'll get the money at some point. This sounds like another one of those dumb ideas where Uncle Sam wants their money now. Remember the old conversion from IRA to Roth in the late 90's, where you could spread the taxes over 4 years? Only 25% of ALL eligible people took "advantage" of that "special deal". How did that work out for ya, Uncle Sam?

Take that tax man....Right on Dude.

 

[ripper1]

Did they consider community property states, like Wisconsin? The only way you can list someone other than your spouse as a primary beneficiary of an IRA is if they sign a form saying they're ok with that. Anyone think that might be a hard signature to get?

Typical Congress, again showing their lack of due diligence on financial matters that affect real people.......

I would say the majority of people in the US can't even do so-called "stretch IRAs" because they don't have enough other assets to afford retirement and give money to younger generations. What was the point again, to "raise" $4.5 billion a year when we are $15.4 TRILLION in the red? That's like looking for spare change on the ground to pay your $300,000 mortgage payment...........

You are killing me, Dude, I like your thinking.

 

[ripper1]

Sometimes. If the inherited IRA is split and each beneficiary given their share in their own account, the following year each uses their own age for RMDs. Clear as mud.

Exactly the way my three sisters and I are using the Inherited IRA from my deceased brother.