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02-12-2012, 11:02 AM
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#21
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Administrator
Join Date: Jan 2008
Location: Chicagoland
Posts: 40,726
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Quote:
Originally Posted by ripper1
Just wait.
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For what?
Quote:
Originally Posted by GrayHare
Do you have a link? Instead to my knowledge there is no 5-year requirement currently, and RMDs of inherited IRAs are the same % for both tIRAs and Roths.
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Fairmark tax advisors Inherited Roth IRA
Quote:
We sometimes see statements like this: "On your death, your beneficiaries receive your Roth IRA tax-free." That statement could be a little misleading. For one thing, the estate tax applies to assets you own in a Roth IRA the same way it applies to assets you own in a regular IRA. What's more, if you die less than five years after setting up a Roth IRA, your beneficiaries may have to pay tax on earnings if they withdraw them too soon.
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02-12-2012, 11:21 AM
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#22
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Thinks s/he gets paid by the post
Join Date: Nov 2011
Posts: 3,906
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Quote:
Originally Posted by MichaelB
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That's a separate 5-year issue... the subject of this thread is required distributions within 5 years. Your earlier post suggested Roths have no RMDs but do have a required distribution within 5 years. Instead the distribution rules for Roths are the same as those for inherited tIRAs, and no current rule requires a person to deplete either IRA type within 5 years, per
http://www.investopedia.com/articles.../03/111903.asp
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02-12-2012, 11:22 AM
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#23
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 17,930
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Quote:
Originally Posted by BellBarbara
I agree, and would make it even less than 5 years. For every dollar they are not collecting from something like this, some taxpayer is footing the bill. There is no benefit to the treasury.
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While it would be natural to assume Congress will either take the revenue from "taxpayers" or dead people*, in fact, what they have done is simply increase the debt. Who knows who will foot that bill in future. IOW I am not aware that tax rates have gone up recently - to cover dead people sheltering their inheritances or for any other reason.
Arguments have been made for a very long time as to whether and how inherited money should be taxed. This proposed bill is one possibility. Still, to me, the real question the public needs to address (to "assist" their elected representatives to do the public's will) is: Does the US have a revenue problem or a spending problem. How you come down on that determines how you feel about virtually all "revenue enhancing" (aka tax increases) schemes like the one proposed. YMMV
*dead people DO typically have to file tax returns at least for one year post death. They DO pay taxes in many cases.
__________________
Ko'olau's Law -
Anything which can be used can be misused. Anything which can be misused will be.
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02-12-2012, 11:40 AM
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#24
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2005
Location: Chicago
Posts: 13,186
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Quote:
Originally Posted by Koolau
Still, to me, the real question the public needs to address (to "assist" their elected representatives to do the public's will) is: Does the US have a revenue problem or a spending problem.
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+1
Nicely stated Koolau. Many seem to agree that the level of our current debt and the rate at which it is increasing is problematic. But fewer seem to agree as to whether the solution lies in reduced spending or increased taxation.
__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
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02-12-2012, 12:07 PM
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#25
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Recycles dryer sheets
Join Date: Dec 2011
Location: philadelphia
Posts: 115
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Quote:
Originally Posted by farmerEd
It does actually make some sense, in my opinion. The 'I' in IRA, does stand for individual after all, and if the 'Individual' has passed on, I don't see why society should continue to pass on tax-free compounding on to the next generation.
5 years seems like a reasonable pay out period.
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Agreed. It is about time Congress started cracking down on these IRA schemes to avoid taxes by making the heirs dissolve the IRA and pay taxes immediately on the funds. Yes, the "I" is for individual and the "R" is for retirement and if the individual has passed on obviously the retirement funds will not be needed so there is no reason for future generations to benefit in any way while we taxpayers foot the bill.
Instead Congress needs to get rid of ALL federal and state inheritance taxes and estate probate fees, so that small businesses, family farms, and one's real property (real estate) will not have to be sold to meet this burden. We have enough taxable events in this country (making money, spending money, etc.) without death being one of them.
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02-12-2012, 12:13 PM
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#26
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
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__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
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02-12-2012, 12:16 PM
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#27
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Recycles dryer sheets
Join Date: Oct 2010
Posts: 392
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We definitely have a spending problem, but that doesn't excuse a loophole like an IRA not being taxed for the convenience of the person who inherited it.
This is not an inheritance issue, these monies were tax deferred for the individual, and taxes should be due when they die.
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02-12-2012, 12:25 PM
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#28
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Thinks s/he gets paid by the post
Join Date: Nov 2011
Posts: 3,906
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Since 1) inherited tIRA withdrawals are already required plus taxed, and 2) many inheritors deplete the IRA funds immediately and are quickly taxed on the whole amount, I question how much sooner the tax dollars will get to Uncle Sam. In fact given #2, forcing most everyone into a 5-year withdrawal might actually reduce the speed at which IRAs are taxed.
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02-12-2012, 12:29 PM
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#29
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Thinks s/he gets paid by the post
Join Date: May 2007
Posts: 1,525
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I didn't see this thread before I started new one on transportation bills now being considered by the House and Senate.
The Senate version had the inherited IRA provisions referenced in the OP's link to the Monday Bloomberg article, but the Finance committee found other funding sources and did not include any IRA changes in what they passed on Tuesday. So, no changes for now.
It will come back later attached to some other bill, I suspect.
For those who want to read the details of Sen. Baucus' inherited IRA proposal, here is the link. IRA provisions start on page 12:
http://finance.senate.gov/legislatio...a-15bfbc3eacd8
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02-12-2012, 12:47 PM
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#30
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Thinks s/he gets paid by the post
Join Date: Nov 2011
Posts: 3,906
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"If Congress does nothing -- literally, nothing -- and lets all laws play out as they're currently written in the books, the budget deficit over the next decade virtually disappears."
from http://www.fool.com/investing/genera...is-fixed-.aspx
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02-12-2012, 01:29 PM
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#31
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Thinks s/he gets paid by the post
Join Date: May 2006
Location: Where the stars at night are big and bright
Posts: 2,847
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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.
__________________
There is no pleasure in having nothing to do; the fun is having lots to do and not doing it. - Andrew Jackson
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02-12-2012, 01:31 PM
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#32
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Thinks s/he gets paid by the post
Join Date: May 2007
Posts: 1,525
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Quote:
Originally Posted by BellBarbara
We definitely have a spending problem, but that doesn't excuse a loophole like an IRA not being taxed for the convenience of the person who inherited it.
This is not an inheritance issue, these monies were tax deferred for the individual, and taxes should be due when they die.
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Quote:
Originally Posted by GrayHare
Since 1) inherited tIRA withdrawals are already required plus taxed, and 2) many inheritors deplete the IRA funds immediately and are quickly taxed on the whole amount, I question how much sooner the tax dollars will get to Uncle Sam. In fact given #2, forcing most everyone into a 5-year withdrawal might actually reduce the speed at which IRAs are taxed.
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There are range of beneficiary withdrawal options under current law. The proposal in the OP's news link would eliminate them in favor of one treatment of taxes being due over five years.
The CBO has access to all of the IRS data on how non-spouse beneficiaries are actually handling their distributions and the tax payments. They no doubt have some big spreadsheets that show what-if projections for all kinds of options.
For example:
Bellbarbara's proposal:
1. 100% immediately taxable at beneficiary's tax rate OR, possibly
1A. 100% immediately taxable at the deceased's tax rate
Current options are listed below (they are not mutually exclusive). All withdrawals are taxable at the beneficiary's tax rate. The minimum withdrawals are subject to an overriding provision that if an IRA owner dies on or after the required beginning date (typically at 70-1/2), the remaining interest must be distributed at least as rapidly as under the minimum distribution method being used as of the date of death.
2. Withdraw some or all immediately
3. Take the entire account by the end of the fifth year following the year of the owner's death. If this rule applies, no distribution is required for any year before that fifth year.
4. Use the life expectancy table and the beneficiary's age as of his or her birthday in the year following the year of the owner's death, reduced by one for each year since the year following the owner's death. Example: a 50-year-old with a life expectancy of 85 has a first-year taxable withdrawal of 1/35th of the IRA balance.
Baucus's proposal:
5. One treatment of taxes in lieu of the current options, with taxes due over five years (apparently similar to #3).
Htown Harry's proposal:
6. Keep the current options, but change #4 to a table based on the owner's projected life expectancy at death. For example, if a 65-year-old dies 20 years "early" compared to life expectancy of 85, the beneficiary would be required to withdraw 1/20th of the IRA balance in the first year. (Similar to the override provision that now only applies if the owner is already subject to RMD's).
Greyhare's speculation that any changes will produce limited additional revenue may or not be correct. I think that conculsion may be based on an assumption that options 2 and 3 are chosen by most beneficiaries and at an equal frequency by beneficiaries inheriting large IRA's.
My guess is that the biggest IRA's are most frequently kept largely tax-deferred for long periods using option #4, hence the number-crunchers at CBO believe there's real money to be found by tightening up the rules.
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02-12-2012, 02:21 PM
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#33
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Full time employment: Posting here.
Join Date: Aug 2006
Location: athens
Posts: 802
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I won't lose much sleep over this one either way...I'll be dead!
__________________
Can't you see yourself in the nursing home saying, " Darn! Wish I'd spent more time at the office instead of wasting time with family and friends."
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02-12-2012, 03:50 PM
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#34
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Administrator
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 34,130
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Quote:
Originally Posted by tightasadrum
I won't lose much sleep over this one either way...I'll be dead!
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I think I'm in that mindset as well
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
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02-12-2012, 04:23 PM
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#35
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Administrator
Join Date: Jan 2008
Location: Chicagoland
Posts: 40,726
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Count me in that group. I'm not expecting anything and if there should be beneficiaries for my portfolio even after taxes what is left is all gravy for them.
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02-12-2012, 04:38 PM
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#36
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Thinks s/he gets paid by the post
Join Date: Feb 2009
Location: Cville
Posts: 1,604
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Quote:
Originally Posted by MichaelB
Count me in that group. I'm not expecting anything and if there should be beneficiaries for my portfolio even after taxes what is left is all gravy for them.
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I guess my take is how did it become public property? They hound us for taxes while we are alive, then stake a claim to anything left? I agree we'll be gone so won't affect me but I think that you should be able to leave what ever is left to whoever you want. It doesn't belong to govt, they should leave it alone. IMHO.
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02-12-2012, 07:04 PM
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#37
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Administrator
Join Date: Jan 2008
Location: Chicagoland
Posts: 40,726
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Quote:
Originally Posted by RetireBy90
I guess my take is how did it become public property? They hound us for taxes while we are alive, then stake a claim to anything left? I agree we'll be gone so won't affect me but I think that you should be able to leave what ever is left to whoever you want. It doesn't belong to govt, they should leave it alone. IMHO.
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Inherited IRAs are earned and investment income never taxed. Once it is taxed you can leave it to whomever you choose. No different than any other income.
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02-13-2012, 03:07 PM
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#38
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2006
Posts: 12,483
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Quote:
Originally Posted by farmerEd
It does actually make some sense, in my opinion. The 'I' in IRA, does stand for individual after all, and if the 'Individual' has passed on, I don't see why society should continue to pass on tax-free compounding on to the next generation.
5 years seems like a reasonable pay out period.
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I disagree 100%, some of those beneficiary IRAs go to minor children, and guess who pays the taxes ? I now see the proposal lets the minors wait until adulthood to pay the taxes. That will for sure guarantee that the money doesn't get stretched out very far................
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Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)
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02-13-2012, 03:39 PM
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#39
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Recycles dryer sheets
Join Date: Oct 2010
Posts: 392
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Yes, but essentially the person who owned the IRA owes the tax. They should tax it when the entity cashes it out.
Everyone comes up with a reason not to pay the taxes, that is why our tax system is so messed up. The person got to defer while alive and working, when they die, the taxes should be paid, not shifted to others to pay.
My personal pet peeve are all these "reasons" people should get a pass on taxes. That is why those of us who work pay so much!
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02-13-2012, 04:14 PM
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#40
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Recycles dryer sheets
Join Date: Sep 2011
Location: Easten Long Island
Posts: 414
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Quote:
Originally Posted by BellBarbara
Yes, but essentially the person who owned the IRA owes the tax. They should tax it when the entity cashes it out.
Everyone comes up with a reason not to pay the taxes, that is why our tax system is so messed up. The person got to defer while alive and working, when they die, the taxes should be paid, not shifted to others to pay.
My personal pet peeve are all these "reasons" people should get a pass on taxes. That is why those of us who work pay so much!
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I have not seen very many people on this forum indicate that they're paying more than 15% on their AGI.
Any deferral of the payment of taxes on tIRAs will likely result in ultimately higher tax revenues. The ability to pass down IRAs encourages a thrift mentality that has become sorely lacking in America's entitlement and instant gratification oriented society.
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