RMD going to 72?

[joeea]

Hope you are kidding? You can't really believe this? Right.

Why, yes. I absolutely believe that deferred taxes are supposed to be paid back eventually, so that other taxpayers don't have to make up for them.

You can't truly believe otherwise, can you?

 

[Gumby]

When I get to be king, the estate tax will be 100% with no exemptions, so you won't have to worry about stepped up basis or stretch IRAs or anything like that.

 

[Another Reader]

I know my parents considered it in their estate planning when they first wrote up the revocable trust around 1978, with the advice of the CPA and the estate planning attorney.

I have several times as much in real estate as I do in tax advantaged accounts. The capital gains there will be stepped up when I go. No income tax due. The "income" that was reinvested into these properties to pay off the mortgages is also exempt. The capital gains in the IRA's will be taxed at ordinary income rates as the heirs withdraw, only now on an accelerated schedule.

When you think about it, IRA's may not be such a great deal if you are concerned about passing assets to your heirs. If you buy assets today with after tax money and do not sell, the basis will be reset at your death. No income tax of any kind due on the assets if your heirs sell then and only on the increase in value if they sell later. If the assets are in tax advantaged plans, your heirs get to pay income tax on both the initial contributed capital and on all the income and gains at their tax rate.

Kind of makes me happy I put as much as I did into real estate and the after tax accounts.

 

[LRDave]

Why, yes. I absolutely believe that deferred taxes are supposed to be paid back eventually, so that other taxpayers don't have to make up for them.

You can't truly believe otherwise, can you?

+++1 You can't honestly believe your deferred taxes are yours, can you?

 

[copyright1997reloaded]

I had no need to read any further.

You picqued my curiosity though... so I googled "Why contribute to an IRA?" and got a number of links... none mention being able to stretch tax-deferral to non-spousal beneficiaries as a selling point so I'm skeptical of your assertion.

https://www.fidelity.com/viewpoints/retirement/why-contribute-to-ira-now
https://www.moneyunder30.com/why-you-should-make-an-ira-contribution
https://investor.vanguard.com/ira/iras
https://www.fool.com/retirement/2018/09/14/what-is-an-ira-and-should-you-contribute-to-one.aspx

You keep on saying this, but the use of the stretch provision has been around for a long time.

While not spelled out in the original IRA/401(k) law, an IRS private letter ruling in 1999 allowed a man who had inherited his mothers multi-million $ IRA to name his own beneficiaries.

In 2001 the IRS simplified guidelines for RMD's which resulted in lower payout ratios. Thus, instead of most people outliving their IRA, most IRA's could now outlive the person.

Here is an article by Ed Slott in Sept. 2000 discussing stretch provisions: https://money.cnn.com/2000/09/20/pensions/q_retire_slott/

 

[Winemaker]

When I get to be king, the estate tax will be 100% with no exemptions, so you won't have to worry about stepped up basis or stretch IRAs or anything like that.

DW and I will not be voting for you and neither will my kids.

Please don't take it personal.

 

[pb4uski]

You keep on saying this, but the use of the stretch provision has been around for a long time.

While not spelled out in the original IRA/401(k) law, an IRS private letter ruling in 1999 allowed a man who had inherited his mothers multi-million $ IRA to name his own beneficiaries.

In 2001 the IRS simplified guidelines for RMD's which resulted in lower payout ratios. Thus, instead of most people outliving their IRA, most IRA's could now outlive the person.

Here is an article by Ed Slott in Sept. 2000 discussing stretch provisions: https://money.cnn.com/2000/09/20/pensions/q_retire_slott/

I don't dispute that the stretch has been along for a long time... what I dispute is that the stretch was an important factor in many peoples' decision to contibute on a tax-deferred basis. All the promotional materials that I have seen regarding IRAs tend to focus on the tax-deferral benefits to the owner or to the owner and their spouse.... usually with examples of how much they might save... with if anything there is a fleeting reference to children.... particularly back years ago when people were deciding whether to contribute or not.

IMO, when people, at the encouragement of their tax experts, started designating grandshildren and great-grandchildren as beneficiaries (what I refer to as superstretch vs stretch applying to children, neices and nephews) it resulted in Congress and others thinking that was at odds with what was intended and was onerous enough for them to "fix" it and it ruined the party for everyone.

Pigs get fat and hogs get slaughtered.

 

[copyright1997reloaded]

I don't dispute that the stretch has been along for a long time... what I dispute is that the stretch was an important factor in many peoples' decision to contibute on a tax-deferred basis.

Define many. If it is only 5%, does that somehow make it invalid? Your argument is essentially that it is OK to change it impacting existing savers because somehow not enough people had it as their primary reason for utilizing an tIRA or traditional 401(k).

If the government wants to change the rules on new contributions, I am fine with that...I will simply stop contributing. But I am stuck(ed) (I was going to use a different word) because I was foolish enough to trust them to stay true to the rules that enticed me to contribute heavily to traditional 401(k) plans.

 

[Nature Lover]

Fair enough... and if something sounds to good to be true....

I actually like the idea of reigning in the stretch, but I think 20 years would be more sensible. I recognize that some people who were planning on it might be disrupted, but IMO it will be a very small percentage. I guess it is easier for me to accept thinking the superstretch was something that never should have existed to begin with.

I think I would keep the current inherited IRA distribution rules for children, neices and nephews of the owner and go 20 years with all others.

IMO, your thinking is reasonable. Like all rules..they can get played with unintended consequences. In this case, maybe Congress has come to the conclusion the unintended consequences are now just too large to remain acceptable. I also think, given the proposed alternative currently in congress, your children/neices/nephews and 20 for all others would likely be considered a reasonable compromise by many (maybe most) IRA owners.

 

[CardsFan]

This is akin to the old file and suspend issue with SS. Yes, the law allowed it, but it was really an unintended consequence. Congress fixed it. Not to my liking, but it probably was the right thing to do.

For the stretch tIRA, I think 10 years is too short, but a defined limit makes sense.

FWIW, if I was REALLY paying attention, I would have made all my after tax accounts equities, keeping more fixed income in the tIRA, at my selected AA, so it grew slower. If I REALLY wanted to deal with the tax torpedo, I would be converting more to Roth into the 22% bracket (since it was deferred at 28%, or more).

Both of those would help mitigate the effects of the potential legislation.

We'll see what happens. It might change my conversion strategies.

 

[SecondCor521]

Are you aware that the Senate version allows a stretch on the first $400k?

Questions. Probably premature, but whatever.

1. Can the $400K be distributed unequally to beneficiaries? For example, Joe Taxpayer has a $1M IRA and leaves it 80/20 to his two sons. So Son #1 gets $800K and Son #2 gets $200K. Can Joe say $300K of the stretch goes to Son #1 and $100K of the stretch goes to Son #2? Or is it proportionate and Son #1 gets $800K/$1M * $400K = $320K and Son #2 gets $200K/$1M * $400K = $80K?

2. How do the sons in the previous example manage their RMDs? Should they split it into two inherited IRAs, with their sheltered stretch amount with an RMD over their lifetime on that portion, and a second IRA containing the remaining "excess" on which they must RMD over the shorter timeframe? Or just one IRA with an IRS worksheet combining the two RMD amounts into one?

Anyone have any tax planning strategies for people affected?

 

[SecondCor521]

When you think about it, IRA's may not be such a great deal if you are concerned about passing assets to your heirs. If you buy assets today with after tax money and do not sell, the basis will be reset at your death. No income tax of any kind due on the assets if your heirs sell then and only on the increase in value if they sell later. If the assets are in tax advantaged plans, your heirs get to pay income tax on both the initial contributed capital and on all the income and gains at their tax rate.

This is true for now. As you probably know, there are proposals to eliminate or modify basis step-up at death.

I don't like either of the proposed modifications (SECURE Act or eliminate step-up), but I'm only one vote out of many and recognize that I am in a tiny minority.

 

[pb4uski]

Define many. ....

My guess would be less than 2%.

 

[pb4uski]

Questions. Probably premature, but whatever....

Yes, way too early but I did see this which is different that what I read elsewhere that the $400k was per IRA owner.

Now, the final detail are being worked out. The Senate proposal uses potentially more favorable language. Namely that this provision does not apply to inherited IRAs balances under $400,000 per recipient. Note that, for example, a million dollar IRA could be divided across three beneficiaries and come under the threshold for each recipient under current Senate language. However, the House bill does not have this caveat.

https://www.forbes.com/sites/simonm...esa-stretch-ira-estate-planning/#55dcaa0e335c

I can't find a "bill" anywhere in the Senate's public records.... just that HR 1994 was received in the Senate on June 3, 2019.

 

[MissMolly]

Is this proposed law for limiting the stretch only for IRA's or does it include 401K's too?

 

[wolf]

Define many. If it is only 5%, does that somehow make it invalid? Your argument is essentially that it is OK to change it impacting existing savers because somehow not enough people had it as their primary reason for utilizing an tIRA or traditional 401(k).

If the government wants to change the rules on new contributions, I am fine with that...I will simply stop contributing. But I am stuck(ed) (I was going to use a different word) because I was foolish enough to trust them to stay true to the rules that enticed me to contribute heavily to traditional 401(k) plans.

+1. Could not agree more. If I knew, 30+ years ago, the rules would change.
I would have invested differently. My decision to invest in IRA's was
based on the rules promoted by Congress.

 

[wolf]

Is this proposed law for limiting the stretch only for IRA's or does it include 401K's too?

Good question. Logically since 401K's can be rolled over into IRA, I think it would apply.

 

[pb4uski]

My view, IRA's introduced 30+ years ago, with detailed rules. I followed the rules. Today, IRA net worth, substantial. Being forced to liquidate in 5 or 10 years, (depending on house/senate version), extremely unfair.

Just glad, I'm not alone in my views,

+1. Could not agree more. If I knew, 30+ years ago, the rules would change.
I would have invested differently. My decision to invest in IRA's was
based on the rules promoted by Congress.

The stretch IRA was based on a 1999 Private Letter Ruling... only 20 years ago... the rule that is changing that you are so upset about... that is so "extremely unfair"... didn't even exist 30+ years ago when you made your decision to invest in IRAs so you couldn't have banked on it when you decided to invest in an IRA.

Thou doth protest too much.

,,, The Multi Generational “Stretch IRA” concept is not brand new. It has been around since 1999 when the Internal Revenue Service, in a Private Letter Ruling, stated that a man who inherited his mother’s seven-figure IRA could name his own beneficiaries. ...

 

[SecondCor521]

+1. Could not agree more. If I knew, 30+ years ago, the rules would change[,] I would have invested differently. My decision to invest in IRA's was based on the rules promoted by Congress.

My family would likely be affected adversely by this proposed legislation. I obviously don't like it, because it gores our oxen.

However, it is pretty plain to see that Congress is elected every 2 years and they regularly enact new legislation, so I think that we need to assume that there is always some risk that the rules will change on us, sometimes rules we relied on, and not always in our favor.

The fact that all our crystal balls are broken is unfortunate, but I'm not sure what we can do about that, or about Congress, except to vote and express our views to our elected representatives.

 

[Another Reader]

The multi generational stretch IRA may be newer, but the stretch IRA is not. This was part of my folks' estate planning long before 1999.

 

[joeea]

+1. Could not agree more. If I knew, 30+ years ago, the rules would change.
I would have invested differently. My decision to invest in IRA's was
based on the rules promoted by Congress.

I'm shocked and chagrined, mortified and stupefied! If only they would have told me that laws can be changed!

Folks, tax laws and inheritance laws change all the time. And they will continue to do so. It's not a set it and forget it world. Social Security rules change. Estate Tax rules change. Taxes are raised. Taxes are cut. Some changes are progressive. Some changes are regressive. Some changes are immediate. Some changes are grandfathered in.

Talk with your CPA and find a new way to pass your wealth to future generations most efficiently, if needed. I have one friend who is looking at life insurance as an alternative tax dodge.

 

[Tiger8693]

I don't understand the animosity toward people who have an opinion that is differing from others. This is what is wrong today. Mod's, it's about time for Porky here.

 

[MichaelB]

The conversation has remained civil so far. The debate regarding the intent has no resolution. We have no way of knowing if “ multigenerational stretch” was an objective of the legislators or an unintended exploitation created by some clever financial planners or tax attorneys.

Regardless of the origin, rules and practices can be changed, and when that happens we must adjust.

 

[Tiger8693]

The conversation has remained civil so far.

 

[steelyman]

A piece that surfaced today. Nothing especially new but it does discuss timelines for the SECURE act and other retirement-related matters.

The hope now is that it gets included in the budget that Congress has to pass by Oct. 1, according to Hopkins.

“I’m still very much of the opinion that what’s going to occur here,” Hopkins said. “The Senate, generally speaking, wants it passed, and I think they’ll get there.”

The Secure Act, if passed, would be the biggest change to retirement rules since 2006.

It’s generally a positive bill, according to Hopkins. But it doesn’t address some key areas contributing to the retirement crisis, including looming shortfalls to Social Security and rising health costs. Not to mention other issues that crop up as people are living longer lives, he said.

https://www.cnbc.com/2019/08/10/con...retiree-savings-pensions-social-security.html