RMD going to 72?

[marko]

Happy for you folks! Our current withdrawals are more than our RMDs would be already so no change for us.

 

[Golden sunsets]

Unfortunately those who already have met age 70-1/2 do not get to reset the clock.

Darn. The effective date makes me ineligible, as I turn 70.5 before 12/31/19.

 

[ziggy29]

Darn. The effective date makes me ineligible, as I turn 70.5 before 12/31/19.

That stinks, but it makes sense since laws like this that affect the tax code are usually implemented as of January 1 of the next (or some future) tax year. I suppose one could hope they would retroactively apply this to 2019, but you'd have a complication in that people who are under 72 but already took RMDs for 2019 can "put them back". They probably just thought it easier to start applying that as of 1/1/2020.

As for strategy, while it's a long way away for me (I'm 53 but taking SEPP from two IRAs) it seems like one way to do this is to withdraw as much as you can *before* age 70.5 (or 72) in the 12% bracket and lower, especially if RMDs would kick your income into the 22% and higher. Alternatively Roth conversions might work for some while they can be done in the 12% bracket or less since Roths have no RMD.

 

[HI Bill]

If this passes, and one isn't retired, how much does this change the 'when should I take SS strategy"? For me, I'd consider taking SS earlier, to avoid the tax bite where the RMDs are taxed and you pay taxes on 85% of SS earnings. Would deferring RMDs for two years make up for the reduced SS benefits?

 

[Bamaman]

My wife hit 70 last June, and she made her little RMD the other day. The real money is in my IRA Rollover account, and I'm 2 years from having to take RMD's.

It's nice to have no debts and no future expected needs for the RMD funds. But we will probably just roll it over into a tax paid investment of some kind and save it for The Kids.

It'd be nice for a reprieve--even if it's just another couple of years.

 

[foxfirev5]

Comparing my current WR to my age 70 RMD it looks like I'd save about $1200 in taxes annually from age 70-72. Nothing there to change any plans at this point. Furthermore any attempt to project my tIRA balance 7 years out is a SWAG at best.

 

[pb4uski]

Impact is negligible for us... we could do another $33k of Roth conversions over the additional 2 years.... since SS will be started by then the headroom for Roth conversions at a tax rate lower than our ultimate tax bracket is thin.

 

[CRLLS]

My wife hit 70 last June, and she made her little RMD the other day. The real money is in my IRA Rollover account, and I'm 2 years from having to take RMD's.

It's nice to have no debts and no future expected needs for the RMD funds. But we will probably just roll it over into a tax paid investment of some kind and save it for The Kids.

It'd be nice for a reprieve--even if it's just another couple of years.

I assume that her "little RMD" was for the tax year 2018? If I understand correctly, she will have to make another one by the end of this year for tax year 2019. That 1st year of RMD's can be confusing.

 

[Dtail]

Even delaying the tax torpedo by 1.5 years is better than nothing.
Perhaps they can also insert an updated life expectancy table, so the WR% amount yearly is lowered.

 

[Koolau]

Heh, heh, always a day late and a dollar short. Recently hit the magic number, so no joy in Muddville. YMMV

 

[COcheesehead]

What is the projected impact of such a change on government revenues? Less incoming tax because people will delay RMDs and their tax? Or more incoming tax because people will convert more tIRA dollars to Roth?

What has been left out of the discussion is that inherited IRA's must be spent within 10 years. That will help pay for some of this.

 

[steelyman]

What has been left out of the discussion is that inherited IRA's must be spent within 10 years. That will help pay for some of this.

I have an inherited IRA that is being “stretched” over time, much longer than 10 years.

 

[CardsFan]

What has been left out of the discussion is that inherited IRA's must be spent within 10 years. That will help pay for some of this.

I didn't see that in the linked article. Are looking at the actual proposed bill?

 

[steelyman]

I didn't see that in the linked article. Are looking at the actual proposed bill?

It might be Section 401 in the bill.

 

[COcheesehead]

I didn't see that in the linked article. Are looking at the actual proposed bill?

They are talking about on CNBC.

 

[COcheesehead]

I think there are exclusions for spouses and kids, but it will hit grandkids.

 

[MichaelB]

Here’s a summary of the House bill https://waysandmeans.house.gov/site...s/documents/SECURE Act section by section.pdf

There isn’t yet a summary of the Senate bill, so here’s the full text https://www.finance.senate.gov/imo/media/doc/OTT19202 (002) As filed.pdf

 

[COcheesehead]

Here’s a summary of the House bill https://waysandmeans.house.gov/site...s/documents/SECURE Act section by section.pdf

There isn’t yet a summary of the Senate bill, so here’s the full text https://www.finance.senate.gov/imo/media/doc/OTT19202 (002) As filed.pdf

Thanks. Here is section on the inherited IRA.

Section 401. Modifications to Required Minimum Distribution Rules
The legislation modifies the required minimum distribution rules with respect to defined contribution plan and IRA balances upon the death of the account owner. Under the legislation, distributions to individuals other than the surviving spouse of the employee (or IRA owner), disabled or chronically ill individuals, individuals who are not more than 10 years younger than the employee (or IRA owner), or child of the employee (or IRA owner) who has not reached the age of majority are generally required to be distributed by the end of the tenth calendar year following the year of the employee or IRA owner’s death.

 

[GrayHare]

Ah there's the rub. Forced withdrawal within 10 years will not only raise some tax money, but also provide grandkids with plenty at what might be a less-than-ideal age to handle big sums. A sort of double-whammy to combat Ed Slott's stretch IRAs.

 

[CardsFan]

Here’s a summary of the House bill https://waysandmeans.house.gov/site...s/documents/SECURE Act section by section.pdf

There isn’t yet a summary of the Senate bill, so here’s the full text https://www.finance.senate.gov/imo/media/doc/OTT19202 (002) As filed.pdf

Thanks. It is a lot easier than reading the bill. My eyes were glazing over.

So, it sounds like they are eliminating the stretch IRA for children (except certain cases of the young or disabled), but giving the recipient 10 years, instead of the current 5 years (which would be in effect if the child took more than the RMD in any given year, or if the recipient was not a child of the owner).

This might cause me to get more aggressive with Roth conversions, but I need to give it some more thought.

 

[steelyman]

Nothing’s set in stone until law but I think it would be helpful and provide more flexibility for beneficiaries to allow Roth conversions for inherited traditional IRAs. To my knowledge, this isn’t currently allowed.

 

[MichaelB]

Thanks. It is a lot easier than reading the bill. My eyes were glazing over.

So, it sounds like they are eliminating the stretch IRA for children (except certain cases of the young or disabled), but giving the recipient 10 years, instead of the current 5 years (which would be in effect if the child took more than the RMD in any given year, or if the recipient was not a child of the owner).

This might cause me to get more aggressive with Roth conversions, but I need to give it some more thought.

The bills are different and would need to be reconciled, but it makes sense to look over the provisions now and start thinking about options.

 

[cathy63]

I think there are exclusions for spouses and kids, but it will hit grandkids.

Thanks. Here is section on the inherited IRA.

Section 401. Modifications to Required Minimum Distribution Rules
The legislation modifies the required minimum distribution rules with respect to defined contribution plan and IRA balances upon the death of the account owner. Under the legislation, distributions to individuals other than the surviving spouse of the employee (or IRA owner), disabled or chronically ill individuals, individuals who are not more than 10 years younger than the employee (or IRA owner), or child of the employee (or IRA owner) who has not reached the age of majority are generally required to be distributed by the end of the tenth calendar year following the year of the employee or IRA owner’s death.

Looks like the exclusion for children is only for minors.

 

[Cobra9777]

Impact is negligible for us... we could do another $33k of Roth conversions over the additional 2 years.... since SS will be started by then the headroom for Roth conversions at a tax rate lower than our ultimate tax bracket is thin.

Ditto. For us, this would enable $9K of additional conversions over those two years. Lots of assumptions in those projections though. So we'll see. In any case, it's better than a stick in the eye.

...So, it sounds like they are eliminating the stretch IRA for children...

This might cause me to get more aggressive with Roth conversions, but I need to give it some more thought.

For us, "getting more aggressive" means paying 22% or more. I'm not sure this is a compelling reason to cross that threshold. There are some better scenarios, like DW filing single after I'm gone. So maybe it just adds a little weight to that decision. Definitely worth pondering further should this become law.

 

[GrayHare]

Sounds as if required withdrawal within 10 years will apply to both traditional and Roth inherited IRAs. Converting to Roth won't stop those withdrawals, but of course will/should eliminate the tax.