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Old 05-27-2019, 07:42 AM   #321
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If it ends up that any non-spouse inherited IRA is withdrawn over 10 years as it seems to be heading then I'm not sure that your current thinking accomplishes much in $$ terms, but it might result in more simplicity because your beneficiaries will inherit one IRA rather than two IRAs.

Rather than 3% a year or whatever, why not more if you can withdraw at a low tax cost?(not sure if you can or not).
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Old 05-27-2019, 07:49 AM   #322
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The two sub-threads here seem to be changes in age for RMDs and changes to rules for withdrawals from inherited IRAs.

At least we have some warning that changes are upcoming although we don’t know exactly what they’ll be yet.

Everyone’s situation is different. In my case a big factor in decision making is that I’m a non-parent. I’ve already been taking withdrawals from my IRAs as if they were required, even though they won’t be for quite a while. I project forward from the IRS life expectancy tables and withdraw the corresponding amount, currently under 3%.

My current thinking is to suspend withdrawing from my own IRAs and instead withdraw from the inherited IRA until the account is depleted, then revert to the original plan. It’ll likely result in a larger annual withdrawal and taxable income but I’ll do what I can to monitor.

One thing of which I was unaware prior to reading about it here on e-r.org is the Medicare premium look back and IRMAA. That’ll coincide (for me) during the IIRA depletion period.
I am not old enough for RMD's on my IRA's and starting this year I lowered the withdrawals on the inherited IRA's to the RMD's to avoid being subject to IRMAA for at least a year or maybe two. Looks like I'm going to have to revisit the big picture with these changes and my new-found knowledge about second generation inherited IRA's.

One question I have is whether inherited IRA's will deplete on the same schedule as they are currently required to do (first inheritor's IRS life) or if they will be subject to the same 5 or 10 year rule. If the answer convinces me it makes more sense to deplete faster and pay the additional income tax and IRMAA, then I'm going to have to retain RobbieB to advise me on how to "blow that dough."
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Old 05-27-2019, 08:00 AM   #323
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If it ends up that any non-spouse inherited IRA is withdrawn over 10 years as it seems to be heading then I'm not sure that your current thinking accomplishes much in $$ terms, but it might result in more simplicity because your beneficiaries will inherit one IRA rather than two IRAs.
I think you’re correct on that (it doesn’t accomplish much in $$ terms except 1) larger withdrawals and 2) withdrawals completely from a tax-deferred account rather than a tIRA/Roth mix. More likely, it’s a negative but should comply with the upcoming changes. I’m not real wild about them but rules is rules. Better than having no IRAs to think about!

Quote:
Rather than 3% a year or whatever, why not more if you can withdraw at a low tax cost?(not sure if you can or not).

The approach I’ve been using seems to me to face up to the tax “torpedo”/“time bomb” earlier. Inch my way towards it little by little and no big surprise at 70-1/2, 72, or 75 (or whatever) when ordered by the tax code.

I value simplicity a lot and am not as adept at thinking like an accountant although I admire those who do. If I can “get close” I’m OK with that. But I also don’t want to risk running out of money! I think the IRS tables are more optimistic about how long I’ll be around so I’m going with the tables, hence the <3% withdrawal rate.
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Old 05-27-2019, 08:14 AM   #324
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.... I value simplicity a lot and am not as adept at thinking like an accountant although I admire those who do. If I can “get close” I’m OK with that. But I also don’t want to risk running out of money! I think the IRS tables are more optimistic about how long I’ll be around so I’m going with the tables, hence the <3% withdrawal rate.
I guess my point is that if you have an opportunity to withdraw tax-deferred money at a low tax cost then do it... you don't have to spend it... you can reinvest part or all of it in a taxable account in the same investments that it was in when it was in your tax-deferred account... but the taxes are already paid and it would be eligible for a stepped up basis, resulting in more tax savings for your heirs.

If you need it later then just withdraw from that taxable account... but take advantage of all opportunities to get money out of tax-deferred at a low tax cost.

As an example, I'm 63 and will be making tax-deferred withdrawals to the top of the 12% tax bracket from now until I claim SS at 70 and pay 11-12% of the amount withdrawn in tax. Once SS starts some of my RMDs will be in the 12% bracket but most will be in the 22% bracket.
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Old 05-27-2019, 08:24 AM   #325
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I guess my point is that if you have an opportunity to withdraw tax-deferred money at a low tax cost then do it... you don't have to spend it... you can reinvest part or all of it in a taxable account in the same investments that it was in when it was in your tax-deferred account... but the taxes are already paid and it would be eligible for a stepped up basis, resulting in more tax savings for your heirs.

If you need it later then just withdraw from that taxable account... but take advantage of all opportunities to get money out of tax-deferred at a low tax cost.

I understand. I think the current rates are very low so it’s a good time to be taking withdrawals from tax-deferred accounts. What’s done with those withdrawals is a different/independent decision (spend or invest). I think that’s in the spirit of what you say.

My estate docs/beneficiaries will have some amount directed to charitable organizations, some to individuals. I’m thinking the charities get the tax-deferred, people get the tax-free. Or I could be one of those whose last check bounces (how fun!).
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Old 05-27-2019, 08:39 AM   #326
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As an example, I'm 63 and will be making tax-deferred withdrawals to the top of the 12% tax bracket from now until I claim SS at 70 and pay 11-12% of the amount withdrawn in tax. Once SS starts some of my RMDs will be in the 12% bracket but most will be in the 22% bracket.

That sounds totally reasonable. My goal is to fly under the 24% bracket, I’m pretty much lodged in 22% owing to several income sources (not complaining, to be clear).
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Old 05-27-2019, 09:13 AM   #327
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That sounds totally reasonable. My goal is to fly under the 24% bracket, I’m pretty much lodged in 22% owing to several income sources (not complaining, to be clear).
Ditto, and in fact I am converting to the top of 24% while still working. A pretty nutso spreadsheet I've built indicates that doing this now will go a long way toward keeping me in the 28% bracket later on, or whatever it may be. But I doubt I'll see 22-24% again.
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Old 05-27-2019, 11:32 AM   #328
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Haven't looked here at posts for a few days, so getting caught up a bit here.

The impact of elimination of stretch provisions (or limiting them to 5 or 10 years) will have an enormous impact on my estate planning.

With the current law, with an assumption of a 5% return and an assumption of my death at 90, my child would inherit over $2M. DC's starting RMD would be about $61K, increasing each year (but offset by continued growth). Assuming DC has a middle income lifestyle (let's say DC makes $60K adjusted for inflation), that $61k extra would be at the 22% federal marginal rate.

Under the new (to be passed law), DC would have to cash out the beneficiary IRA in 10 years (house) or even worse 5 years (senate). Assuming the house plan, that would be over $200K extra income per year, which would push DC to the 35% marginal federal tax rate.

I'm estimating this change will cost my heirs over $300K in additional taxes, which while I will be dead I still consider NOT GOOD.
In a similar situation. Taking RMD's now. Wife starts RMD next year. 2 young children. Early 20's. IRA's over 1 million. 5/10 year rule a disaster.

Should be a "grandfather rule". Prior IRA exempt from new laws.

Will have to look at, converting some IRA $ to Roth. Only problem, currently in 22% fed. tax rate. Not sure what California's tax rate is.

Darn, Congress, always overspending, so now that are passing a law, to collect taxes earlier. Getting tired of them changing the rules in the middle of the game!
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Old 05-27-2019, 05:14 PM   #329
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I agree that 5/10 years for non-spousal inherited IRAs is onerous.... I would favor basing RMDs for non-spousal beneficiaries on the difference between 100 and the age of the IRA owner at their death. So if you inherit an IRA from a 90 year old it would be 10 years, but if you inherit an IRA from a 75 year old it would be 25 years.... etc.

The rationale is that the intent is that income deferred by the owner eventually be withdrawn and taxed... so look to the age of the owner to be consistent with that principle.
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Old 05-27-2019, 05:24 PM   #330
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I'm retired and have been doing this RMD thing for a few years. Will this new regulation have any financial impact on me?
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Old 05-27-2019, 09:09 PM   #331
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^^^ No. Biggest impact is to non-spousal inheritances of IRAs... accelerating distributions.
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Old 05-27-2019, 11:24 PM   #332
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I guess my point is that if you have an opportunity to withdraw tax-deferred money at a low tax cost then do it... you don't have to spend it... you can reinvest part or all of it in a taxable account in the same investments that it was in when it was in your tax-deferred account... but the taxes are already paid and it would be eligible for a stepped up basis, resulting in more tax savings for your heirs.
Why not just Roth convert it instead? Same tax "cost," same benefit as stepped up basis and (apparently) ability to avoid any taxes on earnings for an additional ten years for heirs.
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Old 05-28-2019, 11:14 AM   #333
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Why not just Roth convert it instead? Same tax "cost," same benefit as stepped up basis and (apparently) ability to avoid any taxes on earnings for an additional ten years for heirs.
You could Roth convert instead... six of one or 1/2 dozen of another... in both cases the money if out of tax-deferred at a low tax cost.

Roth conversions don't work well for me because virtually all my taxable investment lots have very significant capital gains so to live off of taxable means that I realize gains that impede my ability to reduce tax-deferred at a low tax cost... so for me it is better to just live off of tax-deferred and leave taxable alone... we will likely spend less than the top of the 12% tax bracket so there will likely be a little room for Roth conversions.
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Old 05-28-2019, 12:07 PM   #334
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Why not just Roth convert it instead? Same tax "cost," same benefit as stepped up basis and (apparently) ability to avoid any taxes on earnings for an additional ten years for heirs.
I agree. I thought this part of the thread was about someone pulling more out of their tIRA than they needed to spend, and either before RMDs or over the RMD requirement.

I would much rather have money in a Roth than a taxable account. In addition to firechief's points for advantages to heirs, if for some reason I do have to tap the funds, I don't have to pay tax on the growth in a Roth.
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Old 06-03-2019, 08:00 PM   #335
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?

The Senate is back in session this week.
Has anyone heard what they will do now ?

?
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Old 06-03-2019, 10:30 PM   #336
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Why not just Roth convert it instead? Same tax "cost," same benefit as stepped up basis and (apparently) ability to avoid any taxes on earnings for an additional ten years for heirs.
In my case. Not the same. Already doing RMD. (in 22% bracket). Wife starts RMD next year. Not sure what tax bracket we will be in then. Then if we take out additional $ to put into Roth, will be paying substantial taxes.

Even if we were able to put $ into Roth. We have very young beneficiaries, who
can not handle a large sum of $. (as others have mentioned).

Sorry for the vent: Congress cannot run within a budget. So they are changing the IRA "rules" in the middle of the game. Should be illegal.

To be fair. They should "grandfather in IRA's. Older folks exempted. Younger folks OK. At least they have the option of determining how much
they want to save in an IRA, 401K,403B, or Roth. Or neither, if one cannot trust Congress to keep changing the rules.
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Old 06-04-2019, 05:43 AM   #337
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Thanks Steelyman. That wasn't on my radar. Back to the spreadsheets!


Paying it forward: The standard Part B premium amount in 2019 is $135.50. Most people will pay the standard Part B premium amount. If your modified adjusted gross income as reported on your IRS tax return from 2 years ago is above a certain amount, you'll pay the standard premium amount and an Income Related Monthly Adjustment Amount (IRMAA). IRMAA is an extra charge added to your premium.
https://www.medicare.gov/your-medica...s/part-b-costs
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Old 06-04-2019, 02:23 PM   #338
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?

The Senate is back in session this week.
Has anyone heard what they will do now ?

?
+1 I've read that they are trying to "fast track" it in the Senate (whatever that really means). It would be fantastic if this thing just died on the vine. Of course, the death of the stretch has been on the radar for at least four years in Washington, so it will likely keep coming back if not passed this year.

Has anybody seen any interpretations of how the ten year rule would work? I'm curious if it will be:

a) entire balance must be removed by end of year ten (without further restrictions, similar to the current five year rule for non-individuals) or

b) a ten year RMD schedule will be established that will, for example, require 10% to be removed by the end of year one, 11.1% of remaining balance year two, 12.5% of remaining balance year three, etc.

If "a", then a 100% Roth legacy will still have ten years to grow tax free, which may be a pretty good deal. If "b," then there may be little advantage to using ten years vs. just leaving all in until the end of year five per (what I will assume to be) the continuing five year option that doesn't require an "individual" to be the beneficiary. In this case, it would greatly simplify estate planning as trusts could be simpler and more flexible wrt ages of the potential beneficiaries (or possible successor charitable beneficiaries).
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Old 06-04-2019, 02:32 PM   #339
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In my case. Not the same. Already doing RMD. (in 22% bracket). Wife starts RMD next year. Not sure what tax bracket we will be in then. Then if we take out additional $ to put into Roth, will be paying substantial taxes.
I understand, but the context of my response was a suggested scenario whereby somebody would choose to make additional, discretionary withdrawals (i.e. over and above RMDs) from a tIRA to fund after-tax investments.

Quote:
Even if we were able to put $ into Roth. We have very young beneficiaries, who
can not handle a large sum of $. (as others have mentioned).
I don't understand what you are saying here. Roth assets could be left in a qualified trust for the benefit of young beneficiaries just as easily as after-tax assets can be left in trust.

Quote:
Sorry for the vent: Congress cannot run within a budget. So they are changing the IRA "rules" in the middle of the game. Should be illegal.
They do run within a budget. It's just that the budget is not revenue neutral (i.e. balanced). I certainly agree that they seem to be changing the rules in the middle of the game (to the sole detriment of those who have "played by the rules" wrt LBYMs and saving for retirement).

Quote:
To be fair. They should "grandfather in IRA's. Older folks exempted. Younger folks OK. At least they have the option of determining how much
they want to save in an IRA, 401K,403B, or Roth. Or neither, if one cannot trust Congress to keep changing the rules.
At the expense of complexity, I feel that all existing IRA assets should be grandfathered and only future IRA contributions should be subject to more restrictive inherited RMD schedules. If not that, then just cancel all IRA and 401k options and encourage after-tax savings by further reductions of capital gains tax rates. Of course, then they would just set their sites on the stepped-up basis.
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Old 06-04-2019, 05:58 PM   #340
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They do run within a budget. It's just that the budget is not revenue neutral (i.e. balanced). I certainly agree that they seem to be changing the rules in the middle of the game (to the sole detriment of those who have "played by the rules" wrt LBYMs and saving for retirement).
September 2018 was the first time in years, a budget was passed. It has been run on continuing resolutions because they can't get their act straight.It has been one of the reasons for government shutdowns.
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