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Senate Finace Committee Votes 26-0 to Kill Stretch IRA
01-01-2017, 07:51 AM
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#1
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Recycles dryer sheets
Join Date: Feb 2015
Posts: 296
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Senate Finace Committee Votes 26-0 to Kill Stretch IRA
Recently, the Senate Finance Committee voted 26-0 to do away with the option for non-spouse beneficiaries of a Traditional IRA to stretch the payments over their lifetime using the Single Life Expectancy Table.
Chances are very good this will become law in 2017 or 2018 and the only remaining options will be for a beneficiary to take the money out all at once or over a 5 year period. Still bad news for those of us who have millions in a Trad. IRA with the desire to pass the money to children/grandchildren.
There will be a $450,000 exemption but still beneficiaries will be hit with an enormous tax bill in many cases. So what can we do?
1) Increase Trad. to Roth Conversions to reduce the amount in a Trad. IRA. Sure I am already doing this and may ramp it up a little but one needs to use money outside of the conversion amount for maximum benefit. And who knows how Uncle Sam will screw us on our ROTH's in the future.
2) Do not allow the Trad. IRA to grow untouched until RMD's are required at 70 1/2. Spend down the Trad. IRA instead of spending down from taxable accounts. This helps as beneficaries would inherit taxable accounts at a stepped up cost basis (for now until Uncle Sam changes the rules).
Anything else we can do? I'm sure others have the same concern who have large Trad. IRA balances that they hope to pass onto heirs.
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01-01-2017, 08:26 AM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2008
Location: No fixed abode
Posts: 8,764
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So this didn't effect the Roth? The beneficiary can still stretch it? I suspect even if this is true, it won't be for long. But at least the beneficiary will be able to withdraw it all without the tax hit.
I have been doing Roth conversions for the past 10 years trying to get as much out of the t-IRA as possible. However, because of my t-IRA riding the bull market I've still got more in there than I started with. Also, being overly successful at creating a cash flow of retirement income I don't have enough leeway now to do significant conversions in the 15% bracket. I've reached the age I can draw from the t-IRA, so I think from now on I'll just do that to fill out the 15% bracket and any other money needs I might have. Other than that, it's just one of those first world problems that my DD will have to suck up.
__________________
"Good judgment comes from experience. Experience comes from bad judgement." - Anonymous (not Will Rogers or Sam Clemens)
DW and I - FIREd at 50 (7/06), living off assets
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01-01-2017, 08:35 AM
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#4
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Thinks s/he gets paid by the post
Join Date: Dec 2015
Posts: 2,232
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Does this change IRAs that have already been inherited?
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01-01-2017, 09:14 AM
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#5
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Thinks s/he gets paid by the post
Join Date: Oct 2002
Location: Chattanooga
Posts: 3,878
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Instead of one IRA with a boat load of dinero could you have say, four or five different IRAs in order to keep under the $450 exemption amount ?
Just a thought.
__________________
Earning money is an action, saving money is a behavior, growing money takes a well diversified portfolio and the discipline to ignore market swings.
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01-01-2017, 09:23 AM
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#6
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Thinks s/he gets paid by the post
Join Date: Nov 2011
Posts: 3,877
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One too many Ed Slott PBS Fund Raising shows. (For those who never watch PBS, Ed Slott greatly popularized the Stretch IRA approach.)
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01-01-2017, 09:38 AM
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#7
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Thinks s/he gets paid by the post
Join Date: Dec 2015
Posts: 2,232
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Quote:
Originally Posted by frayne
Instead of one IRA with a boat load of dinero could you have say, four or five different IRAs in order to keep under the $450 exemption amount ?
Just a thought.
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the article that I read stated the exclusion amount (450K)applied to the "aggregate" account balances of ALL IRAs, 401ks, defined contribution benefits"...so , no, I don't think that approach would exempt any funds.
When my Dad died in 2012 I was surprised to learn that the RMD applied to a Roth IRA, as well as his traditional IRA. So, I'd be surprised if inherited Roth IRAs were treated any differently.
I could never figure out WHY Roth IRAs were subject to the same RMD schedule since it didn't raise any revenue, as the distributions are still tax free.
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01-01-2017, 09:47 AM
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#8
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Thinks s/he gets paid by the post
Join Date: Nov 2011
Posts: 3,877
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Quote:
Originally Posted by HadEnuff
I could never figure out WHY Roth IRAs were subject to the same RMD schedule since it didn't raise any revenue, as the distributions are still tax free.
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Without an RMD all the Roth money could be left to grow tax free, whereas growth on an RMD (moved out of the Roth IRA umbrella) becomes subject to tax.
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01-01-2017, 10:18 AM
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#9
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Thinks s/he gets paid by the post
Join Date: Mar 2010
Posts: 1,994
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I know it is not wise to have an IRA inside an annuity but with this possible change, I'm wondering.... if one does this close to our children inheriting it, if the annuitization process inside the annuity would have the same restrictions. I'm sure our government covered all the bases but ...it is a question since annuity companies want to hang onto the money as long as possible.
Disclaimer: I don't like annuities and don't have one but have used one in the past as a wealth transfer vehicle with my mother's trust...now dissolved.
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01-01-2017, 10:18 AM
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#10
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Thinks s/he gets paid by the post
Join Date: Dec 2015
Posts: 2,232
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Quote:
Originally Posted by GrayHare
Without an RMD all the Roth money could be left to grow tax free, whereas growth on an RMD (moved out of the Roth IRA umbrella) becomes subject to tax.
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OK, that makes sense.
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01-01-2017, 10:20 AM
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#11
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Thinks s/he gets paid by the post
Join Date: Sep 2014
Location: The Great Wide Open
Posts: 3,789
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Quote:
Originally Posted by HadEnuff
Does this change IRAs that have already been inherited?
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This has not become law yet. Contact your Congressmen/women and give them an ear full.
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01-01-2017, 10:22 AM
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#12
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Thinks s/he gets paid by the post
Join Date: Dec 2015
Posts: 2,232
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Quote:
Originally Posted by sheehs1
I know it is not wise to have an IRA inside an annuity but with this possible change, I'm wondering.... if one does this close to our children inheriting it, if the annuitization process inside the annuity would have the same restrictions. I'm sure our government covered all the bases but ...it is a question since annuity companies want to hang onto the money as long as possible.
Disclaimer: I don't like annuities and don't have one but have used one in the past as a wealth transfer vehicle with my mother's trust...now dissolved.
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I thought annuities provided income while you were living, but when you die, the annuity company keeps all the money. How are they used as a vehicle for wealth transfer?
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01-01-2017, 11:00 AM
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#13
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Moderator
Join Date: Apr 2012
Location: San Diego
Posts: 14,171
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Thank you for your discussion.
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Retired June 2014. No longer an enginerd - now I'm just a nerd.
micro pensions 6%, rental income 20%
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