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FIREchief · 10-04-2016, 02:17 PM

Quote:

Originally Posted by stepford

Since Roth's aren't subject to RMDs maybe it doesn't apply.

Since it is "post-death," I'm reading this as applying to both tIRA and Roth IRA. Realistically, the big hit would be to tIRA, as liquidating a large tIRA over five years could drive into the highest tax bracket. The Roth impact would be minimal at first, but would force investment into after-tax assets that would generate taxable income over time.

Big_Hitter · 10-04-2016, 02:21 PM

I guess one alternative is to pass away before the bill takes effect...

Big_Hitter · 10-04-2016, 02:23 PM

Quote:

Originally Posted by Bestwifeever

I never felt the legislation was meant to benefit the heirs and shelter taxes in perpetuity, but obviously others have other feelings. Carry on.

401(a)(9) has a rule against perpetuities, this is the code section or regs section that would be amended

this is why you can't take out a 100% J&S pension with someone 40 years younger than you that isn't a spouse

note they are keeping the spouse exception - sounds like this was something they should have had in the current regs

CardsFan · 10-04-2016, 02:43 PM

Well, I just emailed one of my Senators (the one I think might actually care about this) to express my concerns.

I will let you know what I hear back.

CardsFan · 10-04-2016, 02:46 PM

Quote:

Originally Posted by Big_Hitter

401(a)(9) has a rule against perpetuities, this is the code section or regs section that would be amended

this is why you can't take out a 100% J&S pension with someone 40 years younger than you that isn't a spouse

note they are keeping the spouse exception - sounds like this was something they should have had in the current regs

BUT, they did not have it in the current regs, and they have been around for years (30?). So why now?

Big_Hitter · 10-04-2016, 02:47 PM

Quote:

Originally Posted by CardsFan

BUT, they did not have it in the current regs, and they have been around for years (30?). So why now?

I'm guessing it's due to all the people with big 401k/ira balances that are now dying. Seriously.

CardsFan · 10-04-2016, 02:56 PM

Quote:

Originally Posted by Big_Hitter

I'm guessing it's due to all the people with big 401k/ira balances that are now dying. Seriously.

We agree on that! The gummint sees this big pile of un-taxed money and says lets change the rules so we get some of it! Actually, more of it than we would have gotten if the poor guy lived!

Texas Proud · 10-04-2016, 03:07 PM

Quote:

Originally Posted by Bestwifeever

I never felt the legislation was meant to benefit the heirs and shelter taxes in perpetuity, but obviously others have other feelings. Carry on.

Well, first, it is not in perpetuity.... under current law you have to start taking money out now... so the balance will go down pretty good...

The big change is how fast the account has to be emptied now... as the example above, with $1 million that is a big hit... and if we are in a good economy that million can make maybe $200K in the first year and even though you have taken out $200K you at where you were.. now you have to take out $250K the next year...

I would think an RMD based on the life expectancy of the deceased is the better option... that way the gvmt gets their money as they had planned and the person is not unduly burdened with taxes....

GrayHare · 10-04-2016, 03:21 PM

It's another fiscal cliff too: $450,000 no problem, $450,001 uh oh.

Big_Hitter · 10-04-2016, 03:24 PM

Quote:

Originally Posted by GrayHare

It's another fiscal cliff too: $450,000 no problem, $450,001 uh oh.

gotta draw a line in teh sand somewhere I guess

Another Reader · 10-04-2016, 03:30 PM

Confiscatory, pure and simple. This rule can force the beneficiary into an artificially high and very temporary tax bracket. A $1MM IRA will have to be drained at $200k a year minimum. With any other taxable income coming in, the beneficiary becomes a high income person and most other tax benefits disappear. When stretched over 20 or 30 years, a reasonable amount can be withdrawn and blended with other income to achieve a more reasonable tax rate.

All the more reason to put money into tax favored real estate and avoid the tax deferred IRA and 401(k).

You would think the fairly conservative folks on the finance committee (I'm looking at you, Orrin Hatch) would not stoop to this type of theft.

Cobra9777 · 10-04-2016, 04:04 PM

Quote:

Originally Posted by Another Reader

Confiscatory, pure and simple. This rule can force the beneficiary into an artificially high and very temporary tax bracket. A $1MM IRA will have to be drained at $200k a year minimum. With any other taxable income coming in, the beneficiary becomes a high income person and most other tax benefits disappear. When stretched over 20 or 30 years, a reasonable amount can be withdrawn and blended with other income to achieve a more reasonable tax rate...

[emphasis added]

I think it's already been established in this thread that the new 5 year rule would only apply to the extent the IRA balance exceeds $450K. So $1M would drive $110K/yr for 5 years, plus $450K over the beneficiary's life expectancy. Still a "hit", no doubt, but probably manageable in many cases.

**Alan** · 10-04-2016, 04:11 PM

Sounds like there is another reason to do IRA to Roth conversions - to get your IRA down to <$450k.

It's not clear yet (to me) if a person died with a $500k IRA and 2 adult children named as beneficiaries, would each child have to withdraw $250k over 5 years or only $25k over 25 years. i.e. is it the excess over $450k that is subject to the 5 year rule?

From the notes at the bottom of the article the writer(s) believe that all or parts of the bill won't be taken up until a new Congress takes office.

GrayHare · 10-04-2016, 04:21 PM

Quote:

Originally Posted by Texas Proud

I would think an RMD based on the life expectancy of the deceased is the better option... that way the gvmt gets their money as they had planned and the person is not unduly burdened with taxes....

That's way too reasonable and logical for our congresscritters to implement.

sheehs1 · 10-04-2016, 04:51 PM

Well darn! I actually had left my IRA's to my daughter as a means for her to take RMD's for the rest of her life so she could have "a little bit of money" each year.

I guess the ok news is there is a $450K cap. For me, I have 4 to 5 times the amount in taxable accounts than in deferred accounts so I need to pay attention to that cap and/or not make any more contributions, plan to die before RMDs start or plan to live long enough to be under the cap if I have started RMDS's or do ROTH conversions.

And what about those that don't pay attention to this stuff? How does our government intend to announce this ...if at all?

GrayHare · 10-04-2016, 05:09 PM

The $450,000 number feels like it was pulled out of a hat. Lots of strategies will emerge for those just over the limit, such as early withdrawals if needed to stay under, donations to charity, etc.

FIREchief · 10-04-2016, 05:23 PM

Quote:

Originally Posted by Big_Hitter

http://www.groom.com/media/publicati...on%20Bills.pdf

Good read. Take note that one of the rules changes stretch iras, which may affect many on the forum:

"Post-Death Required Minimum Distribution Rules (“Stretch IRAs”). Current post-death required minimum distribution (“RMD”) rules generally provide that if an employee or IRA owner dies before the required beginning date and has a designated beneficiary, RMD distributions are permitted to be paid over the designated beneficiary’s life expectancy. RESA would change the post-death RMD rules to generally require that all distributions after death (including to a designated beneficiary) be made by the end of the fifth calendar year following the year of death – a significant revenue raiser. The requirement does not apply if the designated beneficiary is an eligible beneficiary, which is defined as any beneficiary who, as of the date of death, is a surviving spouse, disabled, or chronically ill, or is an individual who is not more than 10 years younger than the employee (or IRA owner), or is a child of the employee (or IRA owner) who has not reached the age of majority. In addition, RESA would provide that the new 5-year distribution requirement only applies to the extent that the amount of an individual’s aggregate account balances under all IRAs and defined contributions plans, determined as of the date of death, exceeds $450,000 (indexed for inflation).

Has anybody seen any other source that substantiates this? I've googled, including the Senate's official site, and I can find a lot of mentions of the bill, but none that include elimination of stretch IRAs.

**Gumby** · 10-04-2016, 05:26 PM

If I were king, there would be no such thing as an inherited IRA or 401k, or an inherited anything else for that matter (except for surviving spouses). Since I'm not, I guess they'll do what they're going to do.

CardsFan · 10-04-2016, 05:39 PM

Quote:

Originally Posted by Gumby

If I were king, there would be no such thing as an inherited IRA or 401k, or an inherited anything else for that matter (except for surviving spouses). Since I'm not, I guess they'll do what they're going to do.

So, where should it go? Surely not to the government!

Sent from my iPhone using Early Retirement Forum

Another Reader · 10-04-2016, 05:44 PM

Quote:

Originally Posted by FIREchief

Has anybody seen any other source that substantiates this? I've googled, including the Senate's official site, and I can find a lot of mentions of the bill, but none that include elimination of stretch IRAs.

http://www.finance.senate.gov/imo/me...dification.pdf

http://www.finance.senate.gov/imo/me...%20JCX8816.pdf

$3.182 billion in additional revenue in 2017-2026.