Good explanation of RMD's and SECURE Act

[Souschef]

The link is to an article in T Rowe Prices on line magazine, Insights. It has a very good explanation of different strategies with QCD's, QLAC's and Roth conversions.

https://www.troweprice.com/personal...c-uber=u.F47C1238-61D7-0D58-CD28-62AFED69BFB7

 

[njhowie]

There are a number of things coming with this act.

Another deals with 401k and catch-up contributions for folks over age 50. Beginning in 2024, catch-up contributions will be taxed and deposited into a Roth account. Looks like the government wants their taxes now instead of later, even if just on the catch-up amounts.

 

[Focus]

There are a number of things coming with this act.

Another deals with 401k and catch-up contributions for folks over age 50. Beginning in 2024, catch-up contributions will be taxed and deposited into a Roth account. Looks like the government wants their taxes now instead of later, even if just on the catch-up amounts.

That applies only to those who make $145,000 or more.

 

[njhowie]

That applies only to those who make $145,000 or more.

True.

 

[madatrub]

True.

How does this work? If you make over 145k, all 401k catch ups are pushed into after tax? Or does the first 145k go into either tax deferred or roth, and everything after 145k goes into roth?

 

[njhowie]

How does this work? If you make over 145k, all 401k catch ups are pushed into after tax? Or does the first 145k go into either tax deferred or roth, and everything after 145k goes into roth?

I don't know the specifics...neither does my guy at Fidelity at this point. I read about it, asked him, he said he's read some about it and was confident that by year end Fidelity will be putting out some articles on the act and all that it encompasses.

Here's an article on it from a CPA firm - just one that came up in google:
https://anderscpa.com/401k-plan-sponsors-prepare-for-secure-act-2-0-contribution-changes/

 

[rmorris50]

Thing is if you make under $145k a year you should be doing all Roth anyway. Heck I say do all Roth unless your marginal tax bracket is in the 30s.

This is targeted at highly compensated individuals in their peak earnings years socking away as much as possible right before retirement.

 

[madatrub]

Thing is if you make under $145k a year you should be doing all Roth anyway. Heck I say do all Roth unless your marginal tax bracket is in the 30s.

This is targeted at highly compensated individuals in their peak earnings years socking away as much as possible right before retirement.

Which is potentially alot of people in this forum

 

[madatrub]

I don't know the specifics...neither does my guy at Fidelity at this point. I read about it, asked him, he said he's read some about it and was confident that by year end Fidelity will be putting out some articles on the act and all that it encompasses.

Here's an article on it from a CPA firm - just one that came up in google:
https://anderscpa.com/401k-plan-sponsors-prepare-for-secure-act-2-0-contribution-changes/

My gut is it has to be AFTER you hit 145k, so the first 145k of salary can still be pretax. They arent going to project your salary for you and extrapolate over a full year, imo.

 

[rmorris50]

Which is potentially alot of people in this forum

Agreed. For me I don’t mind paying taxes now as long as I can find ways to keep our marginal tax bracket out of the 32%. I am married and file jointly and so far we’ve been able to find ways to stay out of the 32% bracket. Look at deferred comp plans if you’re lucky enough to have one offered, as an example. But some may just have to bite the bullet.

 

[rmorris50]

My gut is it has to be AFTER you hit 145k, so the first 145k of salary can still be pretax. They arent going to project your salary for you and extrapolate over a full year, imo.

This is based on you earned in the prior calendar year.

 

[pb4uski]

Thing is if you make under $145k a year you should be doing all Roth anyway. Heck I say do all Roth unless your marginal tax bracket is in the 30s.

This is targeted at highly compensated individuals in their peak earnings years socking away as much as possible right before retirement.

WADR, I think that is very poor advice. It all depends on one's expected tax bracket in retirement.

$145k for a married couple would be $27,850 into the 22% tax bracket... if one expects to be in the 12% tax bracket in retirement it would be foolish to pay and extra $2,785 in tax when it can so easily be avoided.

 

[rmorris50]

WADR, I think that is very poor advice. It all depends on one's expected tax bracket in retirement.

$145k for a married couple would be $27,850 into the 22% tax bracket... if one expects to be in the 12% tax bracket in retirement it would be foolish to pay and extra $2,785 in tax when it can so easily be avoided.

Understood, not meant to be advice. but you won’t know if you were foolish until years/decades later. Only you can decide the value of paying a tax now and getting it out of the way vs later.

Having said that, my personal opinion is more people than not who make under 145k will be better served paying taxes now and getting as much as possible into Roths. But YMMV.

 

[Montecfo]

Understood, not meant to be advice. but you won’t know if you were foolish until years/decades later. Only you can decide the value of paying a tax now and getting it out of the way vs later.

Having said that, my personal opinion is more people than not who make under 145k will be better served paying taxes now and getting as much as possible into Roths. But YMMV.

Whether you pay now or defer, you will not know until later if you did the right thing.

And such blanket non-advice is not particularly useful since the answer is so personal to each taxpayer and their strategy.

 

[madatrub]

This is based on you earned in the prior calendar year.

I guess at this point we don't know. What if you retire in July and your salary up until that point is under 145k? You would have been withheld from pre-tax funding even though your salary doesnt hit the criteria.

 

[target2019]

Required Minimum Distributions: What You Should Know
https://www.schwab.com/learn/story/required-minimum-distributions-what-you-should-know

More food for thought.

 

[rmorris50]

Whether you pay now or defer, you will not know until later if you did the right thing.

And such blanket non-advice is not particularly useful since the answer is so personal to each taxpayer and their strategy.

Actually I disagree. Most blanket advice, while mostly likely wrong for a specific individual is still actually useful in the sense it informs your thinking and planning.

Just like all models are wrong, but some are useful.

 

[rmorris50]

I guess at this point we don't know. What if you retire in July and your salary up until that point is under 145k? You would have been withheld from pre-tax funding even though your salary doesnt hit the criteria.

Not sure I understand.the 145k threshold is based on your prior year tax return.

 

[Montecfo]

Actually I disagree. Most blanket advice, while mostly likely wrong for a specific individual is still actually useful in the sense it informs your thinking and planning.

Just like all models are wrong, but some are useful.

Best informed with something more useful is my point. There are many considerations.

 

[pb4uski]

... And such blanket non-advice is not particularly useful since the answer is so personal to each taxpayer and their strategy.

Exactly, just a simple fact of whether the $145k is for a single or a couple makes a world of difference in the result.

The thing is, IME it is more likely that someone will end up in a higher tax bracket in retirement than they think, but still a lower tax bracket than when they were working. It is rare that they end up in a higher tax bracket when retired than when working. If you're talking about the difference between 24% and 22% then tax-deferred savings are not very worthwhile, but if are talking about a difference between 22% and 12%, then it is a horse of a different color.

 

[pb4uski]

Actually I disagree. Most blanket advice, while mostly likely wrong for a specific individual is still actually useful in the sense it informs your thinking and planning.

Just like all models are wrong, but some are useful.

Now I'm confused. If by your own admission blanket advice is "most likely wrong for a specific individual" then that would mean it is wrong more often than it is right for those reading it. So if it is "most likley wrong" how can it be "useful"?

It would be easier for you to just fess up that the blanket advice wasn't well thought out and move on.

 

[Montecfo]

Exactly, just a simple fact of whether the $145k is for a single or a couple makes a world of difference in the result.



The thing is, IME it is more likely that someone will end up in a higher tax bracket in retirement than they think, but still a lower tax bracket than when they were working. It is rare that they end up in a higher tax bracket when retired than when working. If you're talking about the difference between 24% and 22% then tax-deferred savings are not very worthwhile, but if are talking about a difference between 22% and 12%, then it is a horse of a different color.

This is spot on. Big jump between the 12% and 22% brackets and another between the 24% and 32% brackets.

Those seem to be the inflection points for which Roth conversions can make a difference meaningful enough to offset the uncertainty of the other factors.

 

[Blue Poles]

Secure 2.0 also affects RMDs from inherited IRAs. My father died in 2020, and I received an inherited IRA in 2021. The account need to be completely withdrawn within ten years, and there are supposed to be RMDs taken every year as well. But the IRS waived RMDs on 2021 due to Covid, and they have also waived them in 2022 and now 2023 for some reason (the 2023 waiver was just recently announced). Fine with me, I have it in equities so I am happy to let it grow, but had I taken the 2023 RMD prior to the IRA announcement, there would be no way of undoing it. So I like the waiver, but not the uncertainty of the IRS not finalizing the rules.