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Old 01-07-2017, 04:38 PM   #21
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Mostly educated (yet not financially), high earners with inherited IRAs of over $100k. They seem to think that the money will keep coming from somewhere ! Some of the highest earners / wealth owners were the worst. Their parents planned generationly yet the offspring lived for today. Sad. Spoke with an academic about long term trusts, and he proposed that the benefits were overstated due to fees and taxes. I pointed out that the long term plan relied on children and even grandchildren forego taking from the trusts so that future generations will be in the top .1% of the wealth owners. Not going to happen.
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Old 01-07-2017, 04:58 PM   #22
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Well, from a policy standpoint that would certainly moot the issue! Query--in your practice, were you dealing with any of the .1% or even .05% of estates/beneficiaries? (I ask because, as is frequently the case, that thin slice, or fears of same, seems to be what is driving the proposals. As with the AMT and other such "fixes," however....)
I suspect it is folks like Mitt Romney that started the idea. But a simpler fix would be that you must withdraw on the account founders RMD schedule, with for younger beneficiaries using the age 70 percentage until the original account holder reaches 70.
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Old 01-07-2017, 05:01 PM   #23
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Based on my discussions over the years with coworkers, most people have a very difficult time with seeing a large pool of money and not moving to use it as soon as possible. I saw somewhere that the mean time between receiving an unexpected financial windfall and buying a new car is under a week. I like to think my own heirs will exercise some restraint and stretch any IRA money they receive, but I'm not concerned enough to pay for a trust to force the issue. It will be their money. They should make their own decisions.

Many of these proposed changes to IRA rules (eliminating stretch, restricting or limiting Roth conversions) are emotional responses to the perceived notion that the very wealthy are somehow taking advantage - not necessarily to the actual size of the issue. Politics runs on emotions.
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Old 01-07-2017, 05:22 PM   #24
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If the first $450k can remain inside a stretch IRA I don't see any market impact at all because the % of people with IRA totals in excess of $450k is, I presume, small.

I have never seen that % presented. There are many reports of "average IRA account balance", but none that report average and median total amounts of people with IRAs. Many people have multiple IRA accounts.
And it is probably $450K per beneficiary. In my case I have two siblings, so the amount that could be sheltered vis-a-vis my Dad's IRA would be $450K x 3. I think there are very few IRA's out there that would have sheltering issues.

Also, it hasn't happened yet, but in my family if money ever had to come out of a t-IRA faster than desired, the excess that was not spent would very likely be invested back into the markets in a taxable account or perhaps in a college fund like a 529.

For these two reasons, I doubt that the proposal would have any impact on the markets.
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Old 01-07-2017, 05:58 PM   #25
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Many of these proposed changes to IRA rules (eliminating stretch, restricting or limiting Roth conversions) are emotional responses to the perceived notion that the very wealthy are somehow taking advantage - not necessarily to the actual size of the issue. Politics runs on emotions.
+1.
Ironically, the VERY rich have far better mechanisms to convey wealth at low taxes. In reality, this impacts the middle to upper middle class saver, investor, and LBYM'er. Basically, many of us here.
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Old 01-07-2017, 06:08 PM   #26
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My experience with clients who inherited assets (both qualified and after tax $) , is that the benes make grand plans for how the money will be in stead for the long term, only to have the account spent down over about 5 years! Thus, IMHO, any change to the stretch will have almost no effect on the investments in accounts.
DW managed to make her $20,000 stretch IRA last 15years. Helped with college tuition and living expenses, bought her a car, helped pay down some of my debt and finally dissolved it when we purchased our first kid hauler 2years ago. Of course it remained invested until the very last withdrawal and she used it for very important things in her life.

That money helped us greatly, so glad she didn't pi#$ it away. I'm guessing she is the exception.
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Old 01-07-2017, 06:23 PM   #27
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Of course the change will change how people give to charities, if you want to leave something to charity you would do it thru a 401k/IRA because the charity does not pay tax on withdrawals. Of course this was attractive as well when estate taxes where higher, in particular because you could deduct the estate tax on your income tax when you withdrew from a retirement plan.
The net idea is that 401ks/Iras are for your retirement only, not a perputuity.
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Old 01-07-2017, 06:50 PM   #28
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And it is probably $450K per beneficiary.
I think this is mistaken. The proposed exclusion is per deceased IRA owner, not per beneficiary. This is per James Lange here (bottom of page 1): http://www.paytaxeslater.com/article...a-addendum.pdf

And if you have both Roth and Traditional IRA's/401k's, the 450k exclusion is split between the two pro-rata. (See page 5 in the link.)
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Old 01-07-2017, 07:32 PM   #29
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I think this is mistaken. The proposed exclusion is per deceased IRA owner, not per beneficiary. This is per James Lange here (bottom of page 1): http://www.paytaxeslater.com/article...a-addendum.pdf

And if you have both Roth and Traditional IRA's/401k's, the 450k exclusion is split between the two pro-rata. (See page 5 in the link.)
Thank you for the correction! Bummer, but accurate information is great. I was guessing, and I guess I guessed wrong.
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Old 01-07-2017, 08:07 PM   #30
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Is this retroactive? In other words the beneficiary IRA I inherited 8 years ago (that I'm stretching) - Would I have to cash it out over 5 years starting when the bill goes into effect. Would I have to cash it all out, since it's been more than 5 years? Or would I be grandfathered in under the existing rules?

It's enough that it would definitely blow my ACA tax credit qualifications (but they're likely going away also - so that's a moot point.)

I will wait till there's a law before I change my budget/planning, however.
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Old 01-08-2017, 03:30 AM   #31
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My favorite bene story was a client who inherited about $450k in an IRA. She and her husband made about $350k per year (he was a salesman for her family's paper company, she had S-Corp shares in the company). We worked out a plan for her to stretch the IRA out over her lifetime (she was in her 30s). I helped her get the investment account established with a friend of mine (no fees to me, and due to my relationship with the broker, she was at the lowest tier of fees).
I started getting calls from the broker about a month after the account was established. She took out $30k. A call to her and she says she needs a new car because hers was almost 3 years old and had 30k miles on it. A week later, she needs about $10k to lease a new car for her husband (he can't be driving around a 2 year old car and appear successful to his clients!). Another month goes by and she has taken out $30k for a kitchen remodel (this was 25 years ago, so a decent remodel in a modest house).

When I did their taxes, I informed them that the tax bill on the IRA withdrawals was about $30k, and they would need to up their estimated tax payments. Another hit to the IRA. At this point, I recalculated the withdrawals for a 5 year payout, and explained that there would be some taxes due, but in the long run it would match their spending pattern. Fast forward a year, and I asked the broker for the 1099 for the now taxable account and the IRA. He said the IRA was closed, and the taxable was down to $120k. It seems that her DH had to have a new leased BMW every year (latest model with all of the upgrades, because money was no problem!), and she wanted to have more exciting travel options. In the end, all of the IRA $$ was gone in 3 1/2 years, and "it was my fault for making them pay taxes" .

Side note, the husband also inherited some money, all after tax. I talked to the broker about 10 years later, and he hadn't touched his money and it was about 2 1/2 times what he inherited and he was planning on using it to supplement his retirement!
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Old 01-10-2017, 06:44 PM   #32
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Wasn't aware of this bill.
Whew... At least the inherited IRA I received in 2011 will be grandfathered in for the rest of my life. My sibling and I split a $1.4M IRA from our father. If we had to liquidate over five years, there's no question we would have been bumped into the highest tax rate for each of those five years.
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Old 01-10-2017, 08:00 PM   #33
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Wasn't aware of this bill.
Whew... At least the inherited IRA I received in 2011 will be grandfathered in for the rest of my life. My sibling and I split a $1.4M IRA from our father. If we had to liquidate over five years, there's no question we would have been bumped into the highest tax rate for each of those five years.
taking 700k divided by 5 is about 140k so you must have substantial additional income as top rates start at 413k or so.
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Old 01-10-2017, 08:17 PM   #34
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Pure opinion here. The stretch IRA is a generous benefit, perhaps too generous. A mandatory 5-year withdrawal is the opposite. Others have posted here about simply keeping the RMDs on the original IRA owner's schedule, which IMO is a fair compromise. Make the 5-year mandatory only if it would be longer than the original owner's remaining RMD schedule. And, still permit beneficiaries to take more than the RMD should they wish. This way Uncle Sam gets his tax at the same pace he would have had the original owner not died, and Uncle Sam still will likely collect more in tax since the beneficiary is probably working and in a higher tax bracket than the retired original IRA owner.
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Old 01-11-2017, 07:42 AM   #35
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taking 700k divided by 5 is about 140k so you must have substantial additional income as top rates start at 413k or so.
We do. The non IRA portion of the portfolio generates enough income, in addition to wife's employment income, to put us over that higher tax rate, IF we were forced to take a 5 year IRA drawdown.
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