RMD going to 72?

[steelyman]

This may be a repeat from earlier in this thread but it’s an update on SECURE act progress (or lack) from CNBC:

[ADDED] The quote below has a biased slant to it (I think) but the linked article is a bit more balanced.

The Secure Act was approved by the House on May 23 by 417-3. Proponents were said to be hoping to push it through the Senate using a process called unanimous consent.

That means that the Senate would vote on the House version without making changes.

That hasn't happened partly due to opposition from Senator Ted Cruz, R-Texas. Proposals he supports to expand the use of 529s to pay for home schooling and therapy for disabilities, among other expenses, were dropped from the House legislation.

Other expansions of the 529 college savings program, including the ability to pay for student loans and apprenticeships, remained.

"The retirement bill that unanimously passed in the House Ways and Means Committee included the expanded 529 savings plan package," a spokesman for Cruz said. "Unfortunately, at the behest of special interest groups, Speaker Pelosi removed the 529 expansion from the bill before sending it to the Senate."

"Senator Cruz believes we should add it back in and pass a retirement bill that includes both the Gold Star tax fix and the 529 expansion," the spokesman said. The Gold Star fix would prevent children and spouses of fallen service members from getting hit with unexpectedly high tax bills following recent tax reform changes.

https://www.cnbc.com/2019/06/21/why...ng-major-retirement-reform-in-the-senate.html

 

[pb4uski]

The Senate's version has a five year sunset (instead of the ten years in the House's SECURE act), but also excludes the first $400K. I've looked for more details/interpretations but come up empty. The consensus thinking appears to be that the $400K limit would apply to the initial total amount of qualified assets, not to each beneficiary. If this were true, it would argue for Roth converting at least $400K to maximize the benefits of that remaining stretch. That said, I think the five year limit in the Senate version is a deal killer. It goes too far in requiring, for example, a $3.4M tIRA to generate taxes at the beneficiary(s) ordinary income tax rate for $3M over five years.

I agree that 5 years is onerous. However, your example is a poor example because only 0.11% of IRAs have $3 million or more and only 1.5% are over $1 million.

I can't find anything on the Senate version either... the offical line is only that it was received in the Senate.

https://www.bankrate.com/finance/taxes/ira-worth-millions-tax-problem-1.aspx

 

[FIREchief]

I agree that 5 years is onerous. However, your example is a poor example because only 0.11% of IRAs have $3 million or more and only 1.5% are over $1 million.

I can't find anything on the Senate version either... the offical line is only that it was received in the Senate.

https://www.bankrate.com/finance/taxes/ira-worth-millions-tax-problem-1.aspx

It wasn't meant to be a "representative" example of the typical inheritance. It was intended to illustrate an un(?!)intended consequence of the Senate version. That said, it sounds like the "revenue generation" for the benefits for the masses would come largely on the backs of the one (point.five) percenters. Nothing new here.....

 

[FIREchief]

https://www.bankrate.com/finance/taxes/ira-worth-millions-tax-problem-1.aspx

That's an interesting article. With respect to pre-tax IRA's (i.e. not Roth), it seems that even under current law the Treasury becomes a big winner. They're borrowing money at 2%, while the tax deferred earnings in the tIRA balloon over the years/decades at higher rates. Doesn't the treasury benefit from the stretch just as much as the owner when the funds are ultimately withdrawn?

 

[copyright1997reloaded]

It wasn't meant to be a "representative" example of the typical inheritance. It was intended to illustrate an un(?!)intended consequence of the Senate version. That said, it sounds like the "revenue generation" for the benefits for the masses would come largely on the backs of the one (point.five) percenters. Nothing new here.....

And that attitude is reflected here, i.e. screw the one (point.five) percenters.

 

[pb4uski]

It wasn't meant to be a "representative" example of the typical inheritance. It was intended to illustrate an un(?!)intended consequence of the Senate version. That said, it sounds like the "revenue generation" for the benefits for the masses would come largely on the backs of the one (point.five) percenters. Nothing new here.....

Those jumbo $3+ million IRAs must be a lot of growth... even the current max of $19k for 40 years is only $760k.

ETA: Found more info... if you take the max contribution since 1986 and 10 years of catchup contributions the contribution total is only ~$520k.

That's an interesting article. With respect to pre-tax IRA's (i.e. not Roth), it seems that even under current law the Treasury becomes a big winner. They're borrowing money at 2%, while the tax deferred earnings in the tIRA balloon over the years/decades at higher rates. Doesn't the treasury benefit from the stretch just as much as the owner when the funds are ultimately withdrawn?

I think in the long run you are right, but Congress doesn't necessarily think long run.

 

[jebmke]

Those jumbo $3+ million IRAs must be a lot of growth... even the current max of $19k for 40 years is only $760k.

ETA: Found more info... if you take the max contribution since 1986 and 10 years of catchup contributions the contribution total is only ~$520k.



I think in the long run you are right, but Congress doesn't necessarily think long run.

I think pension plan rollovers might be part of the difference. I haven't studied all the details but my wife only worked for about 10 years and her pension + profit sharing contributions were a lot higher than $19K per year. It all rolled over to an IRA eventually.



I had the opportunity to lump sum my DB pension (chose not to) but that would have gone into my IRA had I done so.

 

[GrayHare]

That's an interesting article. With respect to pre-tax IRA's (i.e. not Roth), it seems that even under current law the Treasury becomes a big winner. They're borrowing money at 2%, while the tax deferred earnings in the tIRA balloon over the years/decades at higher rates. Doesn't the treasury benefit from the stretch just as much as the owner when the funds are ultimately withdrawn?

Most people investment savvy enough to put nonpublic shares of a company into an IRA know to make sure to convert it to Roth before that company goes public. As a result most of the monster-sized IRAs are Roth, and so the US Treasury does not benefit from the growth.

 

[Cut-Throat]

Those jumbo $3+ million IRAs must be a lot of growth... even the current max of $19k for 40 years is only $760k.

ETA: Found more info... if you take the max contribution since 1986 and 10 years of catchup contributions the contribution total is only ~$520k.

Here is how to 'Game' the System.

 

[MichaelB]

Here is how to 'Game' the System.

A snippet or description of the link is a courtesy to members, knowing what it’s about let’s them make a more informed choice.

 

[FIREchief]

Most people investment savvy enough to put nonpublic shares of a company into an IRA know to make sure to convert it to Roth before that company goes public. As a result most of the monster-sized IRAs are Roth, and so the US Treasury does not benefit from the growth.

Good point. That said, I will argue that the US Treasury does in fact benefit (eventually). Wealthy people pay the vast majority of income taxes in this country. If the wealth is grown from what was originally "pennies," then there is little lost on the front end. Successful business growth is the key to our long term economy, and we should encourage it in any (legal) way possible. So what if the Roth funds sit and grow for decades without Uncle Sam getting his fingers on it. It will wind up in a taxable account (or spent) eventually, even under current law. The fact that there will be $10 generating dividends and capital gains 30 years from now versus $1 today should be of little significance. If they really want to capture revenue from inter-generational wealth transfer, they might want to look into s*****d *p b****. (shhhhhhhh…….)

 

[pb4uski]

Most people investment savvy enough to put nonpublic shares of a company into an IRA know to make sure to convert it to Roth before that company goes public. As a result most of the monster-sized IRAs are Roth, and so the US Treasury does not benefit from the growth.

.

Here is how to 'Game' the System.

I understand that game/play but relatively few taxpayers get the opportunity to contribute non-public shares into an IRA

 

[pb4uski]

I think pension plan rollovers might be part of the difference. ...

Fair point... DB rollovers are probably a factor.

 

[pb4uski]

....s*****d *p b****. (shhhhhhhh…….)

 

[RunningBum]

stepped up basis

 

[copyright1997reloaded]

Those jumbo $3+ million IRAs must be a lot of growth... even the current max of $19k for 40 years is only $760k.

ETA: Found more info... if you take the max contribution since 1986 and 10 years of catchup contributions the contribution total is only ~$520k.



I think in the long run you are right, but Congress doesn't necessarily think long run.

FWIW, reluctantly putting out a real data point...not to gloat, but to show it doesn't require pension rollovers or putting undervalued assets into a plan.

I started contributing to a 401(k) in 1984. I stopped in 2009. For most of those years, but not all, I maxed my contribution. I did not do so for the first year or so, and one year my contributions were limited due to an issue with top-heavy provisions. Some employer match (3% for most of the years). There is a small amount of after-tax (about $35K contributed, worth about $60K now). So approximately 26 years.

Yes, I did do some dirty market timing, but never large % changes, more in a 20% range. In general, my investments in my 401(k) have been more conservative than outside, e.g. higher % fixed. This was especially true for the first few years because almost all of my money outside of the 401(k) was invested in equities. Over time, I let the equity portion of the 401(k) increase. My current allocation is 63% equity, 37% fixed.

The value of my 401(k) is over 1.5 million.

ETA: I did no purchases of mega-corp stock, so not an example of a single stock boom (or risk). Mostly invested in passive index funds (so OLDSHOOTER would be proud), however since I did do some DMT he would not be proud.

 

[FIREchief]

FWIW, reluctantly putting out a real data point...not to gloat, but to show it doesn't require pension rollovers or putting undervalued assets into a plan.

I started contributing to a 401(k) in 1984. I stopped in 2009. For most of those years, but not all, I maxed my contribution. I did not do so for the first year or so, and one year my contributions were limited due to an issue with top-heavy provisions. Some employer match (3% for most of the years). There is a small amount of after-tax (about $35K contributed, worth about $60K now). So approximately 26 years.

Yes, I did do some dirty market timing, but never large % changes, more in a 20% range. In general, my investments in my 401(k) have been more conservative than outside, e.g. higher % fixed. This was especially true for the first few years because almost all of my money outside of the 401(k) was invested in equities. Over time, I let the equity portion of the 401(k) increase. My current allocation is 63% equity, 37% fixed.

The value of my 401(k) is over 1.5 million.

ETA: I did no purchases of mega-corp stock, so not an example of a single stock boom (or risk). Mostly invested in passive index funds (so OLDSHOOTER would be proud), however since I did do some DMT he would not be proud.

Thanks Copyright. The rarity is not the $1.5M qualified account balance. It's the person who can commit to significant saving early and often without doing stupid stuff when the headlines report gloom and doom. This is what Washington thought they wanted, but now appear to be wavering on....

 

[Winemaker]

FWIW, reluctantly putting out a real data point...not to gloat, but to show it doesn't require pension rollovers or putting undervalued assets into a plan.

I started contributing to a 401(k) in 1984. I stopped in 2009. For most of those years, but not all, I maxed my contribution. I did not do so for the first year or so, and one year my contributions were limited due to an issue with top-heavy provisions. Some employer match (3% for most of the years). There is a small amount of after-tax (about $35K contributed, worth about $60K now). So approximately 26 years.

Yes, I did do some dirty market timing, but never large % changes, more in a 20% range. In general, my investments in my 401(k) have been more conservative than outside, e.g. higher % fixed. This was especially true for the first few years because almost all of my money outside of the 401(k) was invested in equities. Over time, I let the equity portion of the 401(k) increase. My current allocation is 63% equity, 37% fixed.

The value of my 401(k) is over 1.5 million.

ETA: I did no purchases of mega-corp stock, so not an example of a single stock boom (or risk). Mostly invested in passive index funds (so OLDSHOOTER would be proud), however since I did do some DMT he would not be proud.

+2 I put the maximum amount in our company investment plan in '81, with a 6% match dollar to dollar. After a few months, megacorp was bought out and created a big early windfall. It was converted to the 401k when they were created, and I still saved the max and they still matched 6% dollar to dollar, for another 30+years. The powers of compound interest and several years of 17.75% Stable Value fund, not to mention a robust stock market!

 

[pb4uski]

FWIW, reluctantly putting out a real data point...not to gloat, but to show it doesn't require pension rollovers or putting undervalued assets into a plan.

I started contributing to a 401(k) in 1984. I stopped in 2009. For most of those years, but not all, I maxed my contribution. I did not do so for the first year or so, and one year my contributions were limited due to an issue with top-heavy provisions. Some employer match (3% for most of the years). There is a small amount of after-tax (about $35K contributed, worth about $60K now). So approximately 26 years.

Yes, I did do some dirty market timing, but never large % changes, more in a 20% range. In general, my investments in my 401(k) have been more conservative than outside, e.g. higher % fixed. This was especially true for the first few years because almost all of my money outside of the 401(k) was invested in equities. Over time, I let the equity portion of the 401(k) increase. My current allocation is 63% equity, 37% fixed.

The value of my 401(k) is over 1.5 million.

ETA: I did no purchases of mega-corp stock, so not an example of a single stock boom (or risk). Mostly invested in passive index funds (so OLDSHOOTER would be proud), however since I did do some DMT he would not be proud.

Thanks Copyright. The rarity is not the $1.5M qualified account balance. It's the person who can commit to significant saving early and often without doing stupid stuff when the headlines report gloom and doom. This is what Washington thought they wanted, but now appear to be wavering on....

I think you misinterpreted my post. 401ks or IRAs of $1m or $1.5m are laudable but we see "can I retire?" posts of numbers of that size here quite frequently.... what we rarely see is $3m+ tax-deferred accounts.

I'll admit to being surprised that in that data table only 1.4% of IRAs were $1m+ .... I thought it would be higher than that.

 

[nwsteve]

I think you misinterpreted my post. 401ks or IRAs of $1m or $1.5m are laudable but we see "can I retire?" posts of numbers of that size here quite frequently.... what we rarely see is $3m+ tax-deferred accounts.

I'll admit to being surprised that in that data table only 1.4% of IRAs were $1m+ .... I thought it would be higher than that.

I wonder if the data series only looked at size of a given account versa total IRA for an individual. Based on many comments on this Forum I suspect a high percentage of posters here have more than one IRA/401k account. I certainly do. Maybe a poll of how many IRA/401k account is in order? ;-). I have 3

 

[GrayHare]

Since contribution limits are lower for IRAs, it's more difficult to reach big values there than in a 401k.

 

[SecondCor521]

Since contribution limits are lower for IRAs, it's more difficult to reach big values there than in a 401k.

When I left my corporate job, I rolled my 401(k) into my traditional IRA. I suspect that is a common move. I ended up with a large traditional IRA.

 

[CardsFan]

When I left my corporate job, I rolled my 401(k) into my traditional IRA. I suspect that is a common move. I ended up with a large traditional IRA.

Agreed. Did the same. And there some that do not make this move, for good reasons.

This could be why there are not so many large IRAs in pb4uski's reference. Most don't make this move until at retirement, so there may be some large 401k's that are not included in those numbers. As well as the earlier comment about folks having multiple IRA's.

 

[CRLLS]

When I left my corporate job, I rolled my 401(k) into my traditional IRA. I suspect that is a common move. I ended up with a large traditional IRA.

Both DW and I rolled out 401K's and pensions into a Rollover IRA. Then since out tIRA held only pre-tax dollars, we rolled our tIRA into the same Rollover IRAs.

 

[Alan]

Both DW and I rolled out 401K's and pensions into a Rollover IRA. Then since out tIRA held only pre-tax dollars, we rolled our tIRA into the same Rollover IRAs.

Similar here plus DW’s megacorp had converted their DB pensions into cash balance pensions so as well as her 401k the cash balance pension was also rolled into her IRA