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After Stretch IRAs, What Retirement Breaks Could Congress Chop Next?
Old 01-19-2020, 08:37 AM   #1
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After Stretch IRAs, What Retirement Breaks Could Congress Chop Next?

Just read this article on WSJ online about what retirement changes could congress chop next. Starts out with:

“The revision to Stretch IRAs’ substantial benefits makes it a good time to consider other retirement breaks at risk of being trimmed by Congress. That could happen, because tax law is notoriously unstable—even in the area of retirement rules, where savers must plan for decades down the road.”

It goes on to note that the loss of stretch IRA has been debated in Congress for over 5 years. This really caught my attention for some reason.

Others being debated or considered are

End back-door Roth IRAs.

Require annual payouts from Roth IRAs

Cap the size of tax-favored retirement plans.

Limit the value of deductions for traditional IRAs and 401(k)s.

Worth some thinking about how any or all of these might affect you and if your plans might need tweaking. I know my plan currently calls for converting all of my TIRA to Roth in next 7-8 years. I need to consider keeping some in TIRA to have options available.
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Old 01-19-2020, 10:22 AM   #2
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Limit the value of deductions for traditional IRAs and 401(k)s.
These are already limited, especially for tIRAs. Hard to imagine how much more they could reduce the tIRA deduction before it completely disappears.

The biggest one I see is the deep cuts to SS that will happen if Congress doesn't do something to prevent it.
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Old 01-19-2020, 10:31 AM   #3
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Not advocating one way or other, but don't understand why they allow backdoor Roths when they limit direct Roth contributions.
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Old 01-19-2020, 10:35 AM   #4
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....Others being debated or considered are

End back-door Roth IRAs.

Require annual payouts from Roth IRAs

Cap the size of tax-favored retirement plans.

Limit the value of deductions for traditional IRAs and 401(k)s. ...
End back-door Roths... duh! Why does one think they are called back-door? It is because you are working around the rules that were intended to prevent high income taxpayers from contributing to a Roth IRA. Of course it would be on the chopping block!

Require annual payouts from Roths.... while I don't like this one the fact remains that all of these programs were designed to help people save for their retirement and not to pass money to heirs tax-deferred or tax free. That was part of the reason for the RMD rules to begin with... to see that those untaxed income was ultimatedly taxed... it stands to reason that you wouldn't want the tax free benefit of a Roth IRA to extend forever either... that's what the I in Individual Retirement Account stands for.

Cap the size.... no objection... when IRAs were designed they were intended to help people save for retirement... I don't think that they were intended to help rich people save huge amounts with taxes deferred or tax-free in the case of Roths. I think a couple million cap would be sufficient and the reality is that there are only 128,757 IRAs over $2 million (0.3% of all IRAs).

IRA balanceEstimated number of taxpayers
$1 million or less42,382,192
> $1 million to $2 million502,392
> $2 million to $3 million83,529
> $3 million to $5 million36,171
> $5 million to $10 million7,952
> $10 million to $25 million791
> $25 million314
Source: GAO analysis of IRS data. From “IRAs: IRS Could Bolster Enforcement on Multimillion Dollar Accounts, but More Direction From Congress Is Needed.”

As others have pointed out the last item is already place.
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Old 01-19-2020, 10:37 AM   #5
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As someone once said, the tax code is written in pencil.

Everything is on the table.
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Old 01-19-2020, 10:56 AM   #6
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As someone once said, the tax code is written in pencil.
Also in the article. Why did I think they would be in ink ? Guess that is my bad
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Old 01-19-2020, 12:15 PM   #7
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Cap the size of tax-favored retirement plans.
I wonder how they would be able to implement this and at what levels. It's not impossible for someone contributing regularly to such plans to amass multiple millions over several decades. Pulling numbers out of a hat:

Portfolio Visualizer - $250K starting balance - $500/mo. additional contributions - over $5.3M
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Old 01-19-2020, 01:03 PM   #8
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I wonder how they would be able to implement this and at what levels. It's not impossible for someone contributing regularly to such plans to amass multiple millions over several decades. Pulling numbers out of a hat:

Portfolio Visualizer - $250K starting balance - $500/mo. additional contributions - over $5.3M
I think it would be pretty easy... if your 401k/tIRAs exceed $x at the beginning of a year you can't contribute for that year.... parallel to the way that RMDs are based on the beginning of year balance.

While I agree on the second part in reality the vast majority of tIRAs are less than $1 million.... though I suspect there are more 401ks over $1 million.
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Old 01-19-2020, 01:26 PM   #9
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The biggest one I see is the deep cuts to SS that will happen if Congress doesn't do something to prevent it.
I'm glad you mention this. The media talks about the same, old, tired, talking points that are then discussed to death across the Internet. Many of us probably have them memorized by now. What you seldom read about are the proposals on changing how spousal and survivor benefits are calculated. Here is a link to the document dated December 2015:

Congressional Budget Office Social Security Policy Options, 2015

This report is pretty comprehensive and also discusses many of the proposals more commonly reported on. The relevant portions are as follows:

Page 19 under the heading Benefits for Spouses and Survivors of Retired Workers. describes how benefits are currently calculated, which many here are already familiar with, so I won't quote the 2 lengthy paragraphs. You can go to the relevant portion for a refresher.

Here are the proposals being considered:

On page 69 under the heading Option 36: Reduce the Spousal Benefit it says (bolding mine)

Quote:
Beginning in 2023, this option would reduce payments to new beneficiaries who were entitled to receive spousal benefits. Under this option, after a 10-year phase-in period, an eligible spouse of a retired worker (the primary beneficiary) would be entitled to a spousal benefit of 33 percent of that primary beneficiary’s primary insurance amount (instead of 50 percent, as under current law), so long as that surviving spouse was not eligible for a higher benefit on the basis of his or her own earnings. If the spouse also had earned benefits and his or her PIA was less than 33 percent of the primary beneficiary’s PIA, the spouse’s benefit would be increased to equal 33 percent of the primary beneficiary’s PIA. Workers who had PIAs on the basis of their own earnings that were greater than or equal to 33 percent of a spouse’s PIA would receive no additional benefit. Anyone older than 62 or currently receiving spousal benefits in 2023 would not be affected by this option.

This option would reduce benefits by one-third for people who received spousal benefits and were either not eligible for benefits based on their own earnings or whose PIAs, based on their own earnings, were less than 33 percent of their spouses’ PIAs. The reduction would be less than one-third for people whose PIAs, based on their own earnings, were between 33 percent and 50 percent of their spouses’ PIAs.
Page 67 starts the proposals for changes to survivor's benefits as follows (bolding in the paragraphs mine)

Quote:
Option 34: Create an Alternative Benefit for Spouses of Deceased Workers

Beginning in 2016, this option would introduce an alternative benefit for deceased workers’ spouses; current recipients would be eligible only if the new benefit increased their payments. Under this option, the alternative benefit would be calculated as 75 percent of the sum of the surviving spouse’s own worker benefit and the benefit the deceased spouse would have received if still alive.85 The amount would be capped at the primary insurance amount for an average-wage worker.86 The survivor would receive the greater of two possible benefit amounts: the new alternative benefit or the current-law survivors’ benefit.
Quote:
86. This average-wage worker is a hypothetical person who earns the average wage starting at age 20 and continues to do so through the year in which the deceased worker became eligible for retired worker benefits.
Quote:
Option 35: Limit the Survivors’ Benefit

Beginning in 2023, this option would limit the survivors’ benefit to 100 percent of the primary insurance amount for an average-wage worker.87 The option would apply only to newly eligible beneficiaries. People who were older than 62 in 2023 and those receiving survivors’ benefits before that year would not have their benefits limited by this option.
These proposals uncouple the spousal benefit and survivor benefit from the actual wages of the higher earning spouse when those wages are more than those of the average worker.

A quick Google search indicates that the wages of the average worker in 2018 was about $46,800. What that would mean for anyone whose higher-earning spouse makes more than the average wage worker at the applicable point in time, is that the potential spousal benefit and survivor benefit gets a significant haircut if these proposals were to become law.

We're not planning on being highly dependent on Social Security, but many others are. IMO, the bigger implication behind this is that such a thing may only START with spousal/survivor benefits. If they did something like this, it's a small leap for the next step to be to limit the higher earner's benefit to that of the average wage worker. This would adversely affect higher earning single people as well.
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Old 01-19-2020, 01:29 PM   #10
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I think it would be pretty easy... if your 401k/tIRAs exceed $x at the beginning of a year you can't contribute for that year.... parallel to the way that RMDs are based on the beginning of year balance.

While I agree on the second part in reality the vast majority of tIRAs are less than $1 million.... though I suspect there are more 401ks over $1 million.
As to the latter, 401k rollovers could change that for some.
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Old 01-19-2020, 01:57 PM   #11
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I am waiting for something like 50 cents on the dollar reduction on SS based on the RMD for a current year. Have an annual SS payout of $25K and an RMD of $20K? Reduce the SS payout to $15K.
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Old 01-19-2020, 01:59 PM   #12
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I wonder how they would be able to implement this and at what levels. It's not impossible for someone contributing regularly to such plans to amass multiple millions over several decades. Pulling numbers out of a hat:

Portfolio Visualizer - $250K starting balance - $500/mo. additional contributions - over $5.3M
I don't think you could contribute $500/month through most of that time period.
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Old 01-19-2020, 02:08 PM   #13
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I am waiting for something like 50 cents on the dollar reduction on SS based on the RMD for a current year. Have an annual SS payout of $25K and an RMD of $20K? Reduce the SS payout to $15K.
If they did that, then the dismal retirement savings currently going on by the majority of the population would stop.

So I doubt anything of this nature would happen, as the various gov'ts continually try to encourage folks to save for retirement.
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Old 01-19-2020, 02:40 PM   #14
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I don't think you could contribute $500/month through most of that time period.
I'm sure that someone could have. Play with the numbers as you wish. They're not meant to reflect our finances. In reality, hopefully, someone working from 1991 through today, may have had less than $500 to contribute monthly back then, but more to contribute today.
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Old 01-19-2020, 02:41 PM   #15
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I'd like to see non-publicly traded assets disallowed from purcahse from or addition into IRAs. Call it the Zuckerberg provision.
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After Stretch IRAs, What Retirement Breaks Could Congress Chop Next?
Old 01-19-2020, 06:59 PM   #16
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After Stretch IRAs, What Retirement Breaks Could Congress Chop Next?

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I'm sure that someone could have. Play with the numbers as you wish. They're not meant to reflect our finances. In reality, hopefully, someone working from 1991 through today, may have had less than $500 to contribute monthly back then, but more to contribute today.
I meant the max contribution limit:


IRA maximum contribution limits have increased over the years. They started in 1975 with a $1,500 limit from 1975-1981, $2,000 limit from 1982-2001, $3,000 limit from 2002-2004, $4,000 limit from 2005-2007, $5,000 limit from 2008-2012, and $5,500 limit from 2013-2018.


**Edit: Your point is well taken. If someone contributed the max over all those years and got average returns their stash would be impressive.
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Old 01-19-2020, 08:24 PM   #17
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I meant the max contribution limit:


IRA maximum contribution limits have increased over the years. They started in 1975 with a $1,500 limit from 1975-1981, $2,000 limit from 1982-2001, $3,000 limit from 2002-2004, $4,000 limit from 2005-2007, $5,000 limit from 2008-2012, and $5,500 limit from 2013-2018.


**Edit: Your point is well taken. If someone contributed the max over all those years and got average returns their stash would be impressive.
Well, I was one of those dummies that contributed the max in my MM investment plan, 401k, tIRA, or Roth every year 1981-2014. They matched 100% up to 6% of my salary. DW, not so much 403b, but always tIRA or Roth. Needless to say, DW and I are looking pretty sweet, but looking out for a tomahawk.
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Old 01-19-2020, 08:38 PM   #18
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I am waiting for something like 50 cents on the dollar reduction on SS based on the RMD for a current year. Have an annual SS payout of $25K and an RMD of $20K? Reduce the SS payout to $15K.
Then I might 100% Roth convert (assuming current scheme where Roths are not subject to RMDs) or just withdraw everything and pay the tax.
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Old 01-19-2020, 08:42 PM   #19
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I don't think you could contribute $500/month through most of that time period.
You could have to a 401k.

YearEmployee Contribution LimitTotal Contribution LimitAge 50+ Catchup Contribution
2020$19,500.00$57,000.00$6,500.00
2019$19,000.00$56,000.00$6,000.00
2018$18,500.00$55,000.00$6,000.00
2017$18,000.00$54,000.00$6,000.00
2016$18,000.00$53,000.00$6,000.00
2015$18,000.00$53,000.00$6,000.00
2014$17,500.00$52,000.00$5,500.00
2013$17,500.00$51,000.00$5,500.00
2012$17,000.00$50,000.00$5,500.00
2011$16,500.00$49,000.00$5,500.00
2010$16,500.00$49,000.00$5,500.00
2009$16,500.00$49,000.00$5,500.00
2008$15,500.00$46,000.00$5,000.00
2007$15,500.00$45,000.00$5,000.00
2006$15,000.00$44,000.00$5,000.00
2005$14,000.00$42,000.00$4,000.00
2004$13,000.00$41,000.00$3,000.00
2003$12,000.00$40,000.00$2,000.00
2002$11,000.00$40,000.00$1,000.00
2001$10,500.00$35,000.00
2000$10,500.00$30,000.00
1999$10,000.00$30,000.00
1998$10,000.00$30,000.00
1997$9,500.00$30,000.00
1996$9,500.00$30,000.00
1995$9,240.00$30,000.00
1994$9,240.00$30,000.00
1993$8,994.00$30,000.00
1992$8,728.00$30,000.00
1991$8,475.00$30,000.00
1990$7,979.00$30,000.00
1989$7,627.00$30,000.00
1988$7,313.00$30,000.00
1987$7,000.00$30,000.00
1986$7,000.00$30,000.00
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Old 01-20-2020, 06:17 AM   #20
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^^Good point. One could’ve accumulated much higher saving in a 401k and rolled it over to an IRA.
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