Looks like Secure 2.0 will pass [emoji16]

[target2019]

I checked the news. This isn't signed legislation. Here is the text.
https://www.congress.gov/bill/117th-congress/house-bill/2954/text?r=8&s=2

 

[audreyh1]

Audrey; We do get to switch to the new RMD withdrawal rate tables starting in 2022 though, don't we?

Yes, that is already set and the tables are independent of required starting age anyway.

 

[Huston55]

Correct - the model I'm using shows that I'll stay in a lower tax bracket by doing partial conversions over several years. However I'll double check that that's allowed by the plan. Otherwise I guess I'll have to do just one massive conversion... tricky to come up with the cash for the tax bill unless it can be taken from the account itself.

Huston55 - I think you're referring to converting after-tax monies. Pre-tax 401K conversions require paying tax on the total amount (which is considered ordinary income AFAIK).

While I'm not sure what a "Mega" backdoor conversion is, since he (PageTwo) is converting a pre-tax 401K to a Roth, he will have to pay taxes on the entire amount that's converted since he's never paid taxes on his contributions.

Oops. I mistakenly read "post-tax" 401k contributions. Post-Tax contributions are typically advantageous for a Mega-Back Door conversion. If you also have Post-Tax contributions, you may want to evaluate whether it makes sense for you.

 

[ChrisC]

FI; What do you mean by "involuntarily transferred to FERS from CSRS"? Did you leave the federal government and redeem your pension and then go back later, in which case you had no option to choose CSRS? That is the only scenario under which you would "involuntarily" be in FERS.

At the time that the federal government "switched" from CSRS to FERS, current employees were given the "option" to convert to FERS, but it certainly was "opt in", not forced in any way. At the time that this happened, one of the selling points was portability. If you made the switch, the government started depositing to your TSP, which of course builds faster than the CSRS pension. Only those who knew they would be leaving the government would be incented to make the switch.

I can recall one person (only one) of very large number of people in our agency who voluntarily switched. He never did leave the agency and sorely regretted making the change.

There were well-documented instances of OPM improperly switching people from CSRS to FERS during the first 10 plus years when FERS was rolled out to the Government. In fact, I think some of the improperly switched CSRS-FERS folks might have been given the opportunity to be placed in CSRS-Offset retirement coverage, which is a blend of CSRS and FERS retirement programs.

I think it took legislation to straighten out the mess as documented in this House Rpt: https://www.congress.gov/106/crpt/hrpt29/CRPT-106hrpt29-pt1.pdf

 

[Koolau]

Heh, heh, I need the money! Already took out the RMD for the year and will very likely go back for another traunch. All my other sources of "ready" cash are in ROTHs or entities I do not wish to invade due to their otherwise favorable characteristics. (Old SPDAs, Insurance, I-bonds, etc.) I'm trying to "get rid" of as much qualified money as possible before the big RMDs happen a bit later in life. Anything the gummint does to put off collecting RMDs it's gonna get later with, well, interest.

Doncha just love having 1st world problems? YMMV

 

[RetireeRobert]

I think you can do Roth conversions before 55. Has naught to do with Rule of 55.

pagetwo's original comment meant the money in the 401k was accessible without penalty beginning at age 55. The comment was not referring to Roth conversions per se as allowed by rule of 55. Rather, yes, the money coming out of 401ks "does" have to do with the rule of 55.

 

[chassis]

Any news? Seems like crickets on H.R. 2954 and S. 1770.

Is SECURE 2.0 in a labyrinth of endless committee reviews?

 

[mebden]

This is what my wife and I did with our 401ks. One more conversion to do this year for my wife's IRA and we will then be 100% converted to Roth for both of us. We did it over 11 years after retiring early in 2010.

Hey Alan just curious how much money you had to convert? especially if you had to watch the amount each year to keep insurance with the AFCA. As I'm thinking of pulling the plug at work and have almost 400000 to convert any suggestions much appreciated

 

[FI_RElater]

FI; What do you mean by "involuntarily transferred to FERS from CSRS"? Did you leave the federal government and redeem your pension and then go back later, in which case you had no option to choose CSRS? That is the only scenario under which you would "involuntarily" be in FERS.

At the time that the federal government "switched" from CSRS to FERS, current employees were given the "option" to convert to FERS, but it certainly was "opt in", not forced in any way. At the time that this happened, one of the selling points was portability. If you made the switch, the government started depositing to your TSP, which of course builds faster than the CSRS pension. Only those who knew they would be leaving the government would be incented to make the switch.

I can recall one person (only one) of very large number of people in our agency who voluntarily switched. He never did leave the agency and sorely regretted making the change.

Golden Sunsets---
Sorry for not getting back to the thread--

There were some of us that were actually involuntarily changed...remember that FERS didn't become enacted until 1986 and effective in 1987... BUT THEY MADE IT RETROACTIVE!! and you needed so much time in or you were changed...no "optional" situation, even for those who had been full time in CSRS for over a year/almost two years...the "option" to convert was only for those that they didn't involuntarily change...and I knew there were a few that "missed it by that much"
https://i.imgflip.com/v2edn.jpg
and didn't get converted. (it didn't have anything to do with those that left and then came back....besides, my. earliest service (temporary service) was in the late 70's (which I didn't have retirement deducted but later paid service credit for)

Remember also that the Thrift plan was also delayed quite a bit... so they tried to "make up for it " by giving an extra (IIR) 3/4% matching (and remember this was only the G fund as the C fund (and F fund) wasn't established until 1988.... so a bit of the "go go" years of the stock market wasn't available for us in the retirement plan)

The reason that you might not have heard about the retroactive part is that it likely didn't effect many, and those who could see the option would easily see that it made no sense to move from CSRS... there probably weren't many hired...I know that in my case when I left that location that the previous hire from me actually retired!! There was a huge gulf between the employees and I was virtually the only one between them. (Unfortunately, that also meant that many upward slots like management or senior level IC's were already taken by the time I had progressed (unlike some today that apparently get faster progression). One often was already working for a number of years at the more senior level before you got the opportunity for the advancement...again not like today where it seems that they get rapid advancement. )

 

[Alan]

Hey Alan just curious how much money you had to convert? especially if you had to watch the amount each year to keep insurance with the AFCA. As I'm thinking of pulling the plug at work and have almost 400000 to convert any suggestions much appreciated

We had about $800k to convert but fortunately did not have to be concerned about ACA limits since I had retiree insurance from my ex-employer for the first 7 years of retirement then moved to the UK so we had another 4 years of no ACA limits to worry about while doing the conversions. Fortunately the UK-US tax treaty means that Roth conversions are taxed only in the USA so no UK taxes to worry about. Roth withdrawals are tax free in both the US and UK so the best of both worlds for us.

I had the added incentive that once I start drawing UK and US SS that I will jump from the 20% to 40% tax bracket so paying about 17% on each Roth conversion I did will save me 23% once I start making withdrawals. My wife will be in the 20% bracket even after she starts drawing her UK and US SS so a much smaller tax saving for her but still worth doing.

 

[mebden]

We had about $800k to convert but fortunately did not have to be concerned about ACA limits since I had retiree insurance from my ex-employer for the first 7 years of retirement then moved to the UK so we had another 4 years of no ACA limits to worry about while doing the conversions. Fortunately the UK-US tax treaty means that Roth conversions are taxed only in the USA so no UK taxes to worry about. Roth withdrawals are tax free in both the US and UK so the best of both worlds for us.

I had the added incentive that once I start drawing UK and US SS that I will jump from the 20% to 40% tax bracket so paying about 17% on each Roth conversion I did will save me 23% once I start making withdrawals. My wife will be in the 20% bracket even after she starts drawing her UK and US SS so a much smaller tax saving for her but still worth doing.

Hey Alan thanks for sharing. I guess I'll just watch what I convert over to my Roth to keep my ACA premiums at a minimum as I have enough tax free income to live on for 4 years, so the only income I will be reporting is my interest and my conversions over to the Roth each year.

 

[Alan]

Hey Alan thanks for sharing. I guess I'll just watch what I convert over to my Roth to keep my ACA premiums at a minimum as I have enough tax free income to live on for 4 years, so the only income I will be reporting is my interest and my conversions over to the Roth each year.

Another thing we did not have to look out for was IRMAA increasing our Medicare part B premiums since we are resident in England now and didn't need to apply for it when we got to age 65.

 

[Midpack]

HR 2954 still not on the DC radar that I can find, and this https://www.govtrack.us/congress/bills/117/hr2954 prognosticates it has a 48% of passage. We'll see...

Moving the RMD age from 70½ to 72 was helpful, so I won't complain.

 

[dtbach]

I'm already taking RMD amounts at 68 so I guess it doesn't really matter to me.



Unless it does?

 

[Graybeard]

This effects me. In 2022 as things stand now, I will have to take my 1st RMD.

If this passes this year (I forget if they are thinking of moving the 1st RMD to age 73 but I think that was the case) then I would not have to take an RMD next year. If they passed that in 2022 what happens if they drag it out to late December? That would effect people who would have had to take the RMD but changing it in say late December then you would not have had to take the RMD.

Do you get to return the money and owe no tax if you took the RMD say in May or October or are you SOL?

I did not want to wait late in the year in case the market was down and add to that, getting things done due to taxes makes December a crazy month, God forbid your RMD gets screwed up and you get hit with the penalty.

 

[EastWest Gal]

Hey Alan thanks for sharing. I guess I'll just watch what I convert over to my Roth to keep my ACA premiums at a minimum as I have enough tax free income to live on for 4 years, so the only income I will be reporting is my interest and my conversions over to the Roth each year.

ACA premiums will be far less affected in 2021 and 2022 due to the American Rescue Plan, so this year and next are good years make Roth conversions if you are getting HI through the ACA.

 

[Alan]

I did not want to wait late in the year in case the market was down and add to that, getting things done due to taxes makes December a crazy month, God forbid your RMD gets screwed up and you get hit with the penalty.

I’m curious how this works. Is the $ amount a percentage of the closing value of your accounts on Dec 31st the preceding year? If so then no matter how the value of the IRAs change in the year following, the $ amount is the same so how can you get hit with a tax penalty?

https://www.irs.gov/retirement-plan...nt-topics-required-minimum-distributions-rmds

Calculating the required minimum distribution
The required minimum distribution for any year is the account balance as of the end of the immediately preceding calendar year divided by a distribution period from the IRS’s “Uniform Lifetime Table.”

 

[audreyh1]

The amount is indeed based on the Dec 31 value from the prior year.

You can also always set funds aside within the IRA for later RMD to avoid market volatility for just that portion.

IMO the law would have to pass this year in order to go into effect in 2022, and Congress could easily change the start year before it passes. So it’s really up in the air.

 

[Aerides]

IMO the law would have to pass this year in order to go into effect in 2022, and Congress could easily change the start year before it passes. So it’s really up in the air.

Given the legislative priorities and calendar remaining for 2021, there is no chance this will come up for a vote this year, certainly not in the Senate.

 

[SecondCor521]

This effects me. In 2022 as things stand now, I will have to take my 1st RMD.

If this passes this year (I forget if they are thinking of moving the 1st RMD to age 73 but I think that was the case) then I would not have to take an RMD next year. If they passed that in 2022 what happens if they drag it out to late December? That would effect people who would have had to take the RMD but changing it in say late December then you would not have had to take the RMD.

Do you get to return the money and owe no tax if you took the RMD say in May or October or are you SOL?

I would not worry about it.

First, a slight correction: They are talking about moving it to 75, not 73.

Second, if they follow the pattern established with the first SECURE Act, they will phase in the change in such a way that the timing you describe simply won't be an issue. With the first SECURE Act, they made the timing such that everyone in the phase-in window had several months to a year or more to take or not take any applicable first RMD.

So your last question is N/A - you will have plenty of time to take an RMD, and there will be no situation where you would take an RMD and then have the law change retroactively such that you didn't need to take the RMD.

IMHO.

 

[audreyh1]

I would not worry about it.

First, a slight correction: They are talking about moving it to 75, not 73.

Not quite. It was staggered 73, 74, 75.

75 was only for those born in 1958 and later.

73 for everyone who starts RMDs in 2022.

 

[Midpack]

First, a slight correction: They are talking about moving it to 75, not 73.

Not quite.

The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act)1 generally increased the required minimum distribution age to 72. Section 105 increases the required minimum distribution age further to 73 starting on January 1, 2022 – and increases the age further to 74 starting on January 1, 2029 and 75 starting on January 1, 2032.

https://gop-waysandmeans.house.gov/...05/SECURE-2.0-Section-by-section-5.3.21-1.pdf

But this is clearer to me…

So it’s going to be 73 for those born 1950 or later starting next year, 74 for those born in 1956* or later starting in 2029, and 75 for those born in 1958 or later.

*Someone born in 1955 will turn 73 in 2028, so they would still be subject to RMD starting that year instead of 74.

Once you start RMDs you stay on that same schedule. Only if RMDs are exempted in a given year do you get a break.

 

[Graybeard]

Not quite. It was staggered 73, 74, 75.

75 was only for those born in 1958 and later.

73 for everyone who starts RMDs in 2022.

That is what I thought but I forget the calendar years these ages kick in. I was certain this would effect me if they bumped it up again, this time to 73. I should have had to do an RMD this year until they changed it.

ETA - after reading more posts I see it will be age 73 for me (born in 1950). So this is surprising cuz I figured 2021 was going to be the 1st RMD and now it won't be until 2023.

Correct me if I'm wrong, my 1st RMD will be a somewhat higher percentage than had I started at age 70 1/2 which IIRC was around 3.7%?

 

[audreyh1]

That is what I thought but I forget the calendar years these ages kick in. I was certain this would effect me if they bumped it up again, this time to 73. I should have had to do an RMD this year until they changed it.

ETA - after reading more posts I see it will be age 73 for me (born in 1950). So this is surprising cuz I figured 2021 was going to be the 1st RMD and now it won't be until 2023.

Correct me if I'm wrong, my 1st RMD will be a somewhat higher percentage than had I started at age 70 1/2 which IIRC was around 3.7%?

Unfortunately you are wrong.

I'm pretty sure that you have to start RMDs this year as future age changes won't affect that. You still have to take your first RMD this year and yearly thereafter.

In other words, RMD starting age is currently 72. If you are 72 in 2021 then you have to start this year. It doesn't matter if you turn 73 in 2022.

For those turning 72 in 2022, under the new law they could wait a year because they wouldn't turn 73 until 2023.

 

[cathy63]

That is what I thought but I forget the calendar years these ages kick in. I was certain this would effect me if they bumped it up again, this time to 73. I should have had to do an RMD this year until they changed it.

ETA - after reading more posts I see it will be age 73 for me (born in 1950). So this is surprising cuz I figured 2021 was going to be the 1st RMD and now it won't be until 2023.

Correct me if I'm wrong, my 1st RMD will be a somewhat higher percentage than had I started at age 70 1/2 which IIRC was around 3.7%?

This bill that's being discussed in this thread has not passed or been signed into law. The current starting age for RMDs is 72, so if you were born in 1950, you must withdraw the first RMD by 4/15/2023 (based on 12/31/2021 account values) and the second by 12/31/2023 (based on 12/31/2022 account values). Usually people don't want to take two RMDs in one year, so they withdraw the first one in the calendar year when they turn 72.

When you calculate your RMD, you will use the new tables that go into effect in 2022. Here's a comparison of the old and new tables: https://static.fmgsuite.com/media/documents/62a03f4e-4470-466d-ab38-c2d1850bfc7d.pdf Your first RMD will be 3.65% of your account value, same as it would have been before, but you're starting two years later. This assumes that your IRA beneficiary is not a spouse who is more than 10 years younger than you. If you do have a much younger spouse, you would use a different lookup table.