SECURE Act - your thoughts

[mickeyd]

Proposed SECURE Act

The so called SECURE act is not law yet, both houses still have to agree and POTUS needs to sign it. However, it appears as though the "Stretch IRA" is doomed. This affects my kids and maybe yours too. Also, Roth subject to RMD.

If there is any good news about the SECURE Act, it’s that it does not require your beneficiary to liquidate and pay tax on your entire Traditional IRA immediately after your death. For many people, that would be a costly nightmare because they would likely be bumped into a much higher tax bracket. Under the provisions of the SECURE Act, if you leave a Traditional IRA or retirement plan to a beneficiary other than your spouse, they can defer withdrawals (and taxes) for up to 10 years. (There are some exceptions for minors and children with disabilities etc.) If you leave a Roth IRA to your child, they will still have to withdraw the entire account within 10 years of your death, but again, those distributions will not be taxable.

https://www.forbes.com/sites/jlange/2019/06/11/the-hidden-money

-grab-in-the-secure-act/#582e550d3bbd

 

[MichaelB]

There’s a lengthy and detailed discussion on this here http://www.early-retirement.org/forums/f28/rmd-going-to-72-a-97142-15.html

 

[NW-Bound]

For a large IRA/401k account, stretching the withdrawal over 10 years may mean that the heirs will be doubling their income or more. Still mucho income tax.

Perhaps they would just take ER and segue into the sunset.

 

[SecondCor521]

Also, Roth subject to RMD.

Inherited Roths are already subject to RMDs over the beneficiary's lifetime. The proposed law would accelerate those RMDs.

I don't believe the proposed law would create Roth RMDs for the original account holder, but I could be wrong about that.

Further discussion probably belongs on the thread that MichaelB listed.

 

[cbbennet]

Should I be paying attention the current legislation? I may not have much to pass onto my heirs but I would like to know the rules when I commit to a drawdown methodology. I totally missed this item, or perhaps thought it would never make it through Congress.

What are your thoughts?
https://www.forbes.com/sites/jamieh...ing-retirement-planning-and-increasing-taxes/ Congress Set To Pass SECURE Act At Last Minute, Impacting Retirement Planning And Increasing Taxes - Forbes

 

[kgtest]

SECURE Act approved by house on to the Senate StrtchIRA, Expanded 401k annuity plans

The bill was attached to an omnibus spending bill that theyHouse voted, 297-120, to advance the appropriations bill to the Senate, where it is expected to be approved as early as Wednesday and then sent to President to be signed into law.

"The bill would require most non-spouse beneficiaries of individual retirement accounts to take distributions over 10 years instead of over their lifetimes. The change would increase tax revenue to pay for other parts of the bill. Most provisions of the measure would go into effect on Jan. 1."

"Most everybody except those who have saved a lot of money in their 401(k) plans and IRAs and intend to bequeath it to their children or relatives other than their spouses. Under the bill, the beneficiaries would have to liquidate the inherited plan within 10 years.

That would cause a headache for many of George Reilly's clients. He has been working with them to set up trustee-managed inherited IRAs that would prevent young beneficiaries from spending the money too fast.
"

'Advisers also have qualms about the provision that would make it easier to include annuities in retirement plans.'

https://www.investmentnews.com/article/20191217/FREE/191219940/advisers-weigh-in-on-secure-act-approved-by-house-and-on-way-to

 

[MichaelB]

Merging two threads on the same topic

EDIT by Gumby -- Make that three threads on the same topic

 

[kgtest]

Merging two threads on the same topic

ty

 

[kgtest]

For me, as the youngest child of an estate large enough for the RMD over 10 yrs greatly effecting my plans, vs had I had to take it based off life expected. This could boomerang tax torpedoes and health care spend, ACA subsidy etc.

If someone inherits some dough right before their Kid applies for college aid..well this now effects that person and their child. There are some pro's I am not here to listen to those though.

 

[aza455]

Looks like it’s going to happen...

https://www.forbes.com/sites/jamieh...retirement-planning-and-increasing-taxes/amp/

 

[Gumby]

Recent threads on the SECURE Act.

http://www.early-retirement.org/forums/f28/rmd-going-to-72-a-97142.html

http://www.early-retirement.org/forums/f28/ending-stretch-iras-97542.html

 

[ziggy29]

Still trying to wrap my brain around it.

I inherited an IRA from my mom when she passed in 2016. I've been taking RMDs at my life expectancy since 2017. It sounds like this means I have to clear it all out by 2026. But I still need to figure some things out. For example:

* Does this mean I no longer have to take RMDs, but rather simply need to liquidate it by 2026?

* Does this mean I can take I can take lumpy withdrawals through 2026, as long as it is liquidated by then?

And does it even apply to existing inherited "stretch IRAs" or only to new ones? (In other words, are existing inherited IRAs already taking RMDs grandfathered into old rules?)

I suppose while my wife is still working, I could work around this by taking larger contributions and offset it with corresponding increases to her 403B and/or HSA contribution. For example, I could withdraw (say) $10K in a year, and just increase her contributions to those plans by $10K so there is no real tax hit.

[EDIT: Looks like most of what I am seeing suggests that inherited IRAs already in place by the end of 2019 can keep stretching, so there might be no impact on me.]

 

[kgtest]

For a large IRA/401k account, stretching the withdrawal over 10 years may mean that the heirs will be doubling their income or more. Still mucho income tax.

Perhaps they would just take ER and segue into the sunset.

Exactly. Combined DW and I would need to take 66k a year of RMD if we inherited our share of a cpl $1MM IRAs and all 4 parents tragically passed on.

Certainly makes updating that beneficiary to your spouse a LOT more beneficial and important.

Thankfully we will have some inherited Real Estate to help offset some of this and makes owning RE a lot more attractive in terms of tax harvest efficiencies.

Might make gifting while alive a little bit more attractive.

 

[steelyman]

Recent threads on the SECURE Act.



http://www.early-retirement.org/forums/f28/rmd-going-to-72-a-97142.html



http://www.early-retirement.org/forums/f28/ending-stretch-iras-97542.html

Thanks for posting those links. As usual with legislation (argggh), there are multiple distinct and important components. It would be helpful to add comments to one of the existing threads rather than an all-encompassing one (this topic) about the entire act.

[ADDED] ...unless, of course, a comment applies to the whole thing. It appears the legislation will go into effect Jan 1, 2020.

 

[CardsFan]

Looks like I need to go to plan B regarding conversions, and cut 1/3 or more out of my tIRA over the next few years. I was only converting in the 12% bracket.

We have one DS, who will inherit it all. I can pay about 18% effective now, vs. him paying about 30% effective, later on.

Probably will convert to the top of 22%, or maybe into 24% and the first tier of IRMAA.

 

[SecondCor521]

My family's ox will be gored if this does indeed pass. I don't have any particularly good argument against the changes other than they adversely impact us. Oh well.

In my particular case it will cause ripple effects through three generations (with me being generation #2) and possibly large strategic changes in how we do things.

 

[CardsFan]

My family's ox will be gored if this does indeed pass. I don't have any particularly good argument against the changes other than they adversely impact us. Oh well.

In my particular case it will cause ripple effects through three generations (with me being generation #2) and possibly large strategic changes in how we do things.

WADR, this sounds like a done deal, since it is attached the the appropriations bill.

I am in the same boat (only I am the first generation). As said above, looks like I will start paying my son's potential taxes, to a degree.

 

[Dtail]

Looks like I need to go to plan B regarding conversions, and cut 1/3 or more out of my tIRA over the next few years. I was only converting in the 12% bracket.

We have one DS, who will inherit it all. I can pay about 18% effective now, vs. him paying about 30% effective, later on.

Probably will convert to the top of 22%, or maybe into 24% and the first tier of IRMAA.

Aren't inherited Roth accounts also subject to the 10 year liquidation rule?

 

[CardsFan]

Aren't inherited Roth accounts also subject to the 10 year liquidation rule?

Not sure. But if so, no taxes due (though there would be future taxes on gains when re-invested).

For me, I can pay about 18% effective rate now, vs son paying 25-30% effective later (of course this is just a guess depending on future income).

So, we will probably do some larger conversions in the next few years, but no plans to completely deplete the tIRA.

 

[RobbieB]

I'm spending the IRA down now.

Spend now, avoid the rush later -

 

[badatmath]

this would say yes, they are.

https://www.irahelp.com/slottreport/7-common-questions-secure-act

 

[aaronc879]

Just got done reading the summary of the Act and it doesn't appear anything will have an impcat on me. Everything included in the bill seems reasonable. There are a few things that will help a lot of people save for a better retirement. Those things will cost money to implement so there is a new policy that will increase tax revenue so everything is paid for. Seems like a rare win/win. Some people on here will be negatively affected because they have a lot of money and/or their parents do and now taxes may be a little higher. Seems fair and reasonable to me though.

 

[Katsmeow]

Still trying to wrap my brain around it.

I inherited an IRA from my mom when she passed in 2016. I've been taking RMDs at my life expectancy since 2017. It sounds like this means I have to clear it all out by 2026. But I still need to figure some things out. For example:

* Does this mean I no longer have to take RMDs, but rather simply need to liquidate it by 2026?

* Does this mean I can take I can take lumpy withdrawals through 2026, as long as it is liquidated by then?

And does it even apply to existing inherited "stretch IRAs" or only to new ones? (In other words, are existing inherited IRAs already taking RMDs grandfathered into old rules?)

I suppose while my wife is still working, I could work around this by taking larger contributions and offset it with corresponding increases to her 403B and/or HSA contribution. For example, I could withdraw (say) $10K in a year, and just increase her contributions to those plans by $10K so there is no real tax hit.

[EDIT: Looks like most of what I am seeing suggests that inherited IRAs already in place by the end of 2019 can keep stretching, so there might be no impact on me.]

Were you able to find out the impact on existing inherited IRA's? I have a small IRA I inherited from my mother in 2018. I was planning to just keep taking RMD's from it.

 

[copyright1997reloaded]

Just got done reading the summary of the Act and it doesn't appear anything will have an impcat on me. Everything included in the bill seems reasonable. There are a few things that will help a lot of people save for a better retirement. Those things will cost money to implement so there is a new policy that will increase tax revenue so everything is paid for. Seems like a rare win/win. Some people on here will be negatively affected because they have a lot of money and/or their parents do and now taxes may be a little higher. Seems fair and reasonable to me though.

yes, "fair and reasonable" = no impact on you, **** those who are impacted.

ETA: This will likely cost my only heir hundreds of thousands of $.

 

[Gumby]

yes, "fair and reasonable" = no impact on you, **** those who are impacted.

ETA: This will likely cost my only heir hundreds of thousands of $.

Count your blessings. In my ideal world, the estate tax would be 100%, with no exemptions.