RMD going to 72?

[steelyman]

I was thinking for the original owner because we were talking about an approach to just do RMDs for an inherited IRA based on the original owner's RMDs. The table that I was looking at said to use 1.9 years for "115+" so from age 115 onwards you would withdraw 52.63% year so I guess that it would ultimately be less than a penny so it would reach zero... I stand corrected.

I get you. I just added a comment to my post. I do like (or at least support) doing away with the “never hit zero” calculation. That means it’ll probably never happen. [emoji4]

 

[target2019]

I haven’t reached RMD for personal IRAs yet but am a beneficiary of an inherited IRA. I’m also no tax expert but my calculations for RMDs for that IIRA have matched Fidelity’s to the penny.

My understanding is that the distribution period is fixed at the date of the original owner’s death and the IRS tables for survivors give the divisor to be used for the initial distribution.

Thereafter, you subtract one from the divisor for subsequent distributions until the account is depleted. So it does reach zero.

Repeat: no expert here!

[ADDED] In the context of basing distributions on the original owner’s schedule: that makes sense to me but revising to a fixed period as above for survivors seems logical and ensures the account is depleted and taxes are paid.

The way you describe the RMD for beneficiary IRA is same method we use. And there is a year in the future when the factor becomes less than 1, and you take the remaining balance.

 

[joeea]

Yes... I do not believe that Congress intended to provide a multi-generational deferral of taxation of income.

I believe that the primary focus was for the individual to save for retirement in a tax advantaged way with an expectation that most participants would use that money in retirement and not hoard it and RMDs we're intended to ensure that income ultimately did get taxed.

This is completely correct.

The fact that some folks found and exploited unintended side-effects of this law isn't surprising. That fact that a new proposal would take away some of the side-effects isn't surprising either.

The fact that a few folks are bothered by the proposed removal of the side-effects because it personally affects them adversely is entirely predictable. How many tax law changes are universally popular without at least a few complaints?

 

[street]

if passed, we would both benefit from additional year(s) to convert some ira.
Thinking about this at length, i'd prefer children to have lengthier payout. Now i understand the motivation behind the bill(s). Doesn't surprise me.

bingo!

 

[FIREchief]

I highly doubt it was intended to allow participants to defer taxes for multiple generationsas you erroneously suggest.

Your post is unclear. If by "multiple generations" you mean mine and my children's, then yes that is what I not-so-erroneously suggested. If more generations than that, then please show me the post where I allegedly suggested such a thing.

 

[JonB]

Isn't everything in Washington, politics?

The general public, who hasn't one iota of sense of the Constitution, how our republic is supposed to work, is totally lost. For instance, some uneducated dunces think that if Trump is impeached, Hillary becomes President. We the people, are/should demand exactly what is spelled out in our Constitution. If you don't like what's there, then there is a process to change it.

This bill, currently passed by the House, has to be passed by the Senate, and has 390 opinions on this forum alone about, changing the rules midstream, eliminating RMDs completely, and general confusion.

The only reason this bill is under consideration, is because someone thinks someone else is getting screwed, and were gonna screw that person because we can, and when we do, he's gonna remember it. Politics, 1st degree.

I think congress is considering this change to inherited IRA’s so that they can accelerate the collection of taxes from a group who may not even know they will be affected, the potential beneficiaries of future inherited IRA’s. For the few of those who understand it, they probably aren’t very vocal about it and don’t have a lobby supporting their views, so they aren’t getting much push back...

 

[pb4uski]

Your post is unclear. If by "multiple generations" you mean mine and my children's, then yes that is what I not-so-erroneously suggested. If more generations than that, then please show me the post where I allegedly suggested such a thing.

I guess I misinterpreted your posts as being in favor of the current rules which allow a stretch to grandchildren and great-grandchildren.

 

[Bogie]

I fear having children have to cashout an IRA over say 10 years and then after they are used to the income having it suddenly go away.

 

[Philliefan33]

I wonder how much this proposed action will actually increase (accelerate) income tax revenue. While many on this site anticipate leaving a large IRA balance at death, I think that most seniors will not. Has anyone found data for the average tIRA / 401K balance at death?

Between low retirement savings rates for the average population, dwindling pension, and the high healthcare or end of life care costs, how many heirs inherit a six-figure IRA?

 

[copyright1997reloaded]

This is completely correct.

The fact that some folks found and exploited unintended side-effects of this law isn't surprising. That fact that a new proposal would take away some of the side-effects isn't surprising either.

The fact that a few folks are bothered by the proposed removal of the side-effects because it personally affects them adversely is entirely predictable. How many tax law changes are universally popular without at least a few complaints?

I didn't find and exploit anything. The stretch provision has been in the law as far as I can remember, and I started doing 401K contributions in the early 80's. It is THE reason why I've contributed so much to a 401K, including after tax contributions.

I am perfectly OK with changes to laws on a go-forward basis. My issue with this is retroactive aspect of it, now that my money is captured in the plan.

If the legislation made me choose the old way or new way or was limited to contributions as of a certain date, I would not be b*tching about it.

What peeves me (a bit) are those on this forum the the attitude of oh well or that somehow the stretch provision was a mistake - it was not, and it was put in the law on purpose because they knew that many people (including me) would have been reluctant to otherwise utilize it.

 

[Helena]

.

Because several senators have put holds on the House bill...
below is more info about the possible Senate process.

This is just a quote. Go to link for entire article.


Senate Working to Overcome ‘Holds’ on Retirement Security Legislation

June 7, 2019

**

" Sen. Charles Grassley (R-IA), Chairman of the Senate Finance Committee, is working to overcome the objections, but unless he can appease those senators, the legislation may have to go through regular order instead of being passed immediately by UC.

If that were to happen, the legislation would first have to go through the Senate Finance Committee. Chairman Grassley could start with the House-approved H.R. 1994, or he could substitute that bill for the Retirement Enhancement and Savings Act (RESA), which he and Sen. Ron Wyden (D-OR) reintroduced in April. The two bills contain similar provisions.

Even if the legislation is cleared through the Finance Committee, however, Senate Majority Leader Mitch McConnell (R-KY) may not allow for the legislation to come to the Senate floor unless it has been cleared by all members of his caucus first.

All in all, it still seems likely that the underlying retirement security legislation, including components of both RESA and the SECURE Act, will still be approved, but it may undergo a few changes – and may be slowed by several weeks, if not months, if it must go through the regular order process. "

more at link

https://www.napa-net.org/news-info/...vercome-holds-retirement-security-legislation

.

 

[FIREchief]

I didn't find and exploit anything. The stretch provision has been in the law as far as I can remember, and I started doing 401K contributions in the early 80's. It is THE reason why I've contributed so much to a 401K, including after tax contributions.

I am perfectly OK with changes to laws on a go-forward basis. My issue with this is retroactive aspect of it, now that my money is captured in the plan.

If the legislation made me choose the old way or new way or was limited to contributions as of a certain date, I would not be b*tching about it.

What peeves me (a bit) are those on this forum the the attitude of oh well or that somehow the stretch provision was a mistake - it was not, and it was put in the law on purpose because they knew that many people (including me) would have been reluctant to otherwise utilize it.

Great post. This was never a loop hole and always part of the government "marketing" of individuals taking responsibility for their own retirement incomes. The stretch was a safety valve for unexpected early death, in order to avoid what would otherwise become a tax "penalty" for accumulating savings that ultimately were not needed for the owner's lifetime. Those of us who have participated in this (now known to be scam) program for decades understand this.

If the problem is ultra-rich bypassing generations, then just address that.

 

[FIREchief]

I wonder how much this proposed action will actually increase (accelerate) income tax revenue.

I believe our first clue to the answer is the fact that the change to the stretch rules is found in the "revenue" section of the legislation.

 

[FIREchief]

.

Because several senators have put holds on the House bill...
below is more info about the possible Senate process.

This is just a quote. Go to link for entire article.


Senate Working to Overcome ‘Holds’ on Retirement Security Legislation

June 7, 2019

**

" Sen. Charles Grassley (R-IA), Chairman of the Senate Finance Committee, is working to overcome the objections, but unless he can appease those senators, the legislation may have to go through regular order instead of being passed immediately by UC.

If that were to happen, the legislation would first have to go through the Senate Finance Committee. Chairman Grassley could start with the House-approved H.R. 1994, or he could substitute that bill for the Retirement Enhancement and Savings Act (RESA), which he and Sen. Ron Wyden (D-OR) reintroduced in April. The two bills contain similar provisions.

Even if the legislation is cleared through the Finance Committee, however, Senate Majority Leader Mitch McConnell (R-KY) may not allow for the legislation to come to the Senate floor unless it has been cleared by all members of his caucus first.

All in all, it still seems likely that the underlying retirement security legislation, including components of both RESA and the SECURE Act, will still be approved, but it may undergo a few changes – and may be slowed by several weeks, if not months, if it must go through the regular order process. "

more at link

https://www.napa-net.org/news-info/...vercome-holds-retirement-security-legislation

.

Thanks for posting that Helena. It doesn't sound like this is going to end quickly.

 

[Philliefan33]

I believe our first clue to the answer is the fact that the change to the stretch rules is found in the "revenue" section of the legislation.

Right, that’s what legislators think (or want us to believe) will happen. More money flowing in due to faster depletion of inherited IRA’s / taxes being paid.

But what are the numbers? Does income tax revenue go up by5%? 1%? 0.0001%?

My sense is that the effect would be very small.

 

[MichaelB]

Revenue provisions for The Secure Act total $16.3B over 10 years between 2019 - 2029. See the CBO analysis here https://www.cbo.gov/system/files/2019-04/hr1994table.xlsx

The net impact is around $2B over the decade.

 

[CardsFan]

For the record, the House bill we are discussing does a whole lot more than extend the RMD age and eliminate the "stretch IRA".

Of course, as FIRE folks (or wannabe FIRE folks) we are focused on these two aspects. The purpose of the bill is NOT to help (or screw) people like us. We are just collateral damage (or unwitting beneficiaries).

Are the other objectives a good idea, or worthwhile? I have no idea, as they don't affect me, so I have not delved into them.

Am I surprised that tax laws might change? Uh, no, that happens all the time. Do I like it? Well, no, but only because it might make my DS pay more in taxes.

At least the House bill allows for 10 years for withdrawal, versus the Senate bill with 5.

Seeing as I have told DS to plan on nothing, if he has to get only 65% of what we leave instead of 80%, he will be just fine.

 

[statsman]

If the stretch IRA is eliminated to be a 10 (or 5) year period to withdraw for a non-spouse, that individual may be able alleviate some of the "loss" of the benefit by maxing out their own retirement accounts, assuming they currently aren't.

I am surprised by the number of young workers (say under 40) who do not put much if any money into their company's 401(k) plan or into an IRA. With a 5/10 year period of extra income, they could use far more of their paycheck to (a) get their own retirement accounts beefed up, and (b) reduce their overall tax hit in the years the inherited IRA needs to be spent down.

While not the same as the current stretch IRA rules, it's still a way to benefit to some degree utilizing the funds inherited from tax-deferred accounts. A 10 year period would work well for those who would be underfunded in their own retirement accounts.

 

[target2019]

"Open the door for annuities. Few employers embed annuities in their workplace plans now, but provisions in the SECURE Act encourage their use. Employers who select annuity providers would be protected from lawsuits, and workers would be able to move annuities from one workplace plan to another. Workers will have to watch out for risks and costs."

https://www.forbes.com/sites/ashleaebeling/2019/05/24/whats-in-the-big-retirement-bill/#74a3582e7d26

That is odious! A gift for the insurance companies.

 

[Philliefan33]

Revenue provisions for The Secure Act total $16.3B over 10 years between 2019 - 2029. See the CBO analysis here https://www.cbo.gov/system/files/2019-04/hr1994table.xlsx

The net impact is around $2B over the decade.

So like I guessed, a drop in the bucket.

The estimated federal income tax revenues for 2020 is $1.8 trillion.

Unless I messed up all those zeroes, $2 billion is about 0.001% of the expected income tax revenue in one year.

I won’t try to guess at the reason behind the proposed changes, but increased revenue doesn’t pass the sniff test.

 

[joeea]

I fear having children have to cashout an IRA over say 10 years and then after they are used to the income having it suddenly go away.

You suspect the "children" wouldn't understand how it works and thus be surprised?

 

[joeea]

I am perfectly OK with changes to laws on a go-forward basis. My issue with this is retroactive aspect of it, now that my money is captured in the plan.

I understand. You don't want changes that affect you negatively. Like everyone else.

 

[FIREchief]

I understand. You don't want changes that affect you negatively. Like everyone else.

I think it is deeper than this. The whole IRA program was designed to "keep us from our money" until retirement (i.e. the 10% penalty plus taxes due on withdrawals before 59 1/2). Many entered into this expecting the Government to stick to their own rules and come through with the advertised benefits. Apparently, they aren't going to live up to that. I've noticed that while killing the stretch they're sticking with the 10% penalty for early withdrawals. Imagine my surprise.

 

[joeea]

I think it is deeper than this. The whole IRA program was designed to "keep us from our money" until retirement (i.e. the 10% penalty plus taxes due on withdrawals before 59 1/2). Many entered into this expecting the Government to stick to their own rules and come through with the advertised benefits. Apparently, they aren't going to live up to that. I've noticed that while killing the stretch they're sticking with the 10% penalty for early withdrawals. Imagine my surprise.

I understand. You never expected rules to change. You are disappointed.

I expected to be able to take advantage of file and suspect Social Security rules. Until they changed them. Oh well.

 

[copyright1997reloaded]

I understand. You don't want changes that affect you negatively. Like everyone else.

Yes, that's true. More importantly I think that the long run success of a country depends on trust and the belief that a deal is a deal (i.e. contracts are honored). That's what I deserve by believing that the deal as outlined to me 27 years ago would be honored.

I will adapt, in fact I have already started to do so. I just stopped any further tax-deferred deductions of my pay towards tax-deferred plans. Instead, for now I am directing them towards Roth 457(b) and/or 403(b). I'm also thinking about simply stopping any and all government sponsored savings. Instead, just collect the money, pay the immediate taxes and be done with it.

What riles me is the attitude here. From posters who think it fine and dandy to have millions of dollars in assets yet be eligible for ACA subsidies intended for the poor to those who think the only thing important is that they get one more year before having to do an RMD. In the meantime, I get to pay at the 32% bracket on my current earnings and will end up paying tons for medicare B and D even though I've kicked in over 120K in medicare tax payments and over 285K in social security payments, and I am afraid to add up the total Federal and State taxes paid over my working lifetime.

So please, enough of the of the posts about "some folks found and exploited unintended side-effects" stuff.

/End rant.

p.s. I am grateful for the financial position I am in. I started with nothing and now have much more than I ever thought I would have. I will say that I worked tons of hours and gave up a lot to get here and both LBYM and wise (lucky according to OldShooter investment) decisions have gotten me here. I am still w*rking even though I have no financial reasons to do so - and in fact things like this make me question my desire to keep working. I do so because not only do I get paid but I also get satisfaction in doing so. I had a student at graduation come up to me and thank me for helping him on a final project that he was struggling with...I didn't even remember doing so (it was a year+ ago), but it was striking in how important that additional help was to him!