Ending Stretch IRAs

[GrayHare]

Quote:

Originally Posted by ncbill Senate version has enough loopholes to drive a truck through it.

"to the extent that the balance of the account ... does not exceed $400,000."

As written that sounds like splitting an $800k tIRA into two $400k tIRAs would get around the rule. Surely that loophole will be closed, no?

[steelyman]

Quote:

Originally Posted by GrayHare "to the extent that the balance of the account ... does not exceed $400,000." As written that sounds like splitting an $800k tIRA into two $400k tIRAs would get around the rule. Surely that loophole will be closed, no?

I don’t know that it’s necessary to split into multiple IRAs. Just use designated beneficiaries for the owner’s (original) IRA.

[pb4uski]

Quote:

Originally Posted by GrayHare "to the extent that the balance of the account ... does not exceed $400,000." As written that sounds like splitting an $800k tIRA into two $400k tIRAs would get around the rule. Surely that loophole will be closed, no?

I doubt it.... that would be too easy... it would likely aggregate accounts for a given beneficiary so you could NOT sidestep by splitting accounts.

Whether the $400k per beneficiary would be applied to tIRAs and Roths combined or separately might be a question.... but I would think combined.

[ncbill]

Quote:

Originally Posted by GrayHare "to the extent that the balance of the account ... does not exceed $400,000." As written that sounds like splitting an $800k tIRA into two $400k tIRAs would get around the rule. Surely that loophole will be closed, no?

IIRC in some versions of the proposed law you're supposed to pro-rate that, e.g. for a $800k tIRA split between two beneficiaries they'd each have to take $200,000 over the shorter (5-10 year) period.

But I doubt that's trackable, so each of them could likely get away with simply spreading distributions on the entire $400k over their lifetime instead.

Or if one (non-spouse) beneficiary inherits the entire $800k, splitting between custodians (e.g. $400k to Vanguard, $400k to Fidelity) & telling each custodian to calculate RMDs based on life expectancy.

[audreyh1]

It seems that in the case of the inherited Roth IRA there are no tax implications for the heir, simply that they can’t leave the money in it to grow tax free indefinitely, and must withdraw the Roth IRA funds over 5 years.

[kannon]

Thanks for the clarification. Does lessen impact. Is the $400k threshold the senate version?

[FIREchief]

Quote:

Originally Posted by kannon Thanks for the clarification. Does lessen impact. Is the $400k threshold the senate version?

That's the only place that has a threshold. The House version is 100% withdrawal within 10 years. So, the question may become is it better to have to remove inherited Roth RMDs over remaining life expectancy beginning year after death....or, is it better to leave them untouched for ten years, and then have to move them 100% into after tax investments (with no immediate taxes). That one doesn't scare me as much as everything but $400K out of the water in five years.

What if an inherited tIRA is exactly $400K at time of death, but it grows to $600K after five years? Does $200K have to immediately be removed? I think going to something other than the current RMD formula could constitute "simplification," but I doubt that this is the agenda.

[googily]

FYI, the end of the stretch IRA may be about to happen. It's tucked into the spending bill approved by the House today and likely to be approved by the Senate.

https://www.cnbc.com/2019/12/17/lawm...e-wealthy.html

[phil1ben]

Looks like a done deal. However, the new bill does not require the beneficiaries to take a RMD every year. You can withdraw whenever you want during the ten-year period provided it is depleted by Year 10.

I assume that if beneficiary #1 should die before the 10 year period his/her beneficiary must withdraw within what is left of the first 10 year period.

[Marc]

And I assume we don't get the deferral of RMD until 72 which was the carrot in the stand alone bill; only the stick and not the carrot.

[SecondCor521]

Quote:

Originally Posted by Marc And I assume we don't get the deferral of RMD until 72 which was the carrot in the stand alone bill; only the stick and not the carrot.

You'd assume incorrectly.

[Alexi]

Quote:

Originally Posted by phil1ben Looks like a done deal.

The House passed it today. The Senate will need to pass it within the next two days so Trump can sign it into law by Friday which he is expected to do.

[MichaelB]

There’s another active thread on this, so to avoid confusion let’s continue the discussion there. http://www.early-retirement.org/foru...ts-101248.html