RMD going to 72?

steelyman said:
I wonder (and don’t know the answer in the general case) if the expected changes in IRA treatment affect the decision to name a trust as a designated beneficiary. My understanding, likely based on Ed Slott’s “Retirement Time Bomb” book published a while ago, is that this is not recommended and my recollection is that the reason was it rules out the stretch IRA.
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It depends upon how the trust is drafted. If the ten year limit sticks, then it will likely be the death of qualified conduit trusts. If properly drafted as an accumulation trust (i.e. all potential beneficiaries are "individuals" and at some point the trust requires "outright payout to now living individual - see Natalie Choate's book), then the trust can likely benefit from the same options available to an individual beneficiary. In this scenario, Roth assets will be highly preferable, as I believe they will be able to be retained in the Roth account for the full ten years, and then distributed within the trust to an after-tax account without immediate tax consequence. See my signature.
 
Elimination of stretch IRA.

IMHO- I don't think everyone is getting it. A simple example. You take out a 30 year home mortgage. 15 years later, the Bank (Congress) decides, it made a mistake and is losing dollars.

So Bank (Congress) , says, we are changing the terms of the Mortgage/Contract. The Bank (Congress), Says, Even though you have 15 years to go, We want the home loan balance paid back in 5 years.

IMHO, only a few of you will understand? Again, just my 2 cents.
 
wolf said:
Elimination of stretch IRA.

IMHO- I don't think everyone is getting it. A simple example. You take out a 30 year home mortgage. 15 years later, the Bank (Congress) decides, it made a mistake and is losing dollars.

So Bank (Congress) , says, we are changing the terms of the Mortgage/Contract. The Bank (Congress), Says, Even though you have 15 years to go, We want the home loan balance paid back in 5 years.

IMHO, only a few of you will understand? Again, just my 2 cents.
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First, it's all just hypothetical at this point, until a bill gets a bit closer to the senate floor, so it's easy to imagine that there will be some grandfathering baked in to any changes. I'm of the thought that those who already inherited the IRA would not necessarily be impacted by the stretch removal, only newly inherited ones after this new law takes effect.

Second, even if I'm wrong and the stretch elimination applies to all non-spousal inheritances on day 1, your example isn't the same. "Take all the money now" is not the same impact as "Pay us all the money now". Ok sure, those that had to take a big lump of new-RMD would now have bigger taxes, but still...

Wake me up if it makes it to a floor vote I guess.
 
wolf said:
Elimination of stretch IRA.

IMHO- I don't think everyone is getting it. A simple example. You take out a 30 year home mortgage. 15 years later, the Bank (Congress) decides, it made a mistake and is losing dollars.

So Bank (Congress) , says, we are changing the terms of the Mortgage/Contract. The Bank (Congress), Says, Even though you have 15 years to go, We want the home loan balance paid back in 5 years.

IMHO, only a few of you will understand? Again, just my 2 cents.
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I understand your example. Unfortunately there is a difference between the two things you're trying to compare.

A mortgage is a contract between two private entities - a person (usually) and a bank. The government cannot generally change the terms of a legal contract.

The stretch IRA provision is part of federal law with which private citizens must comply under pain of imprisonment, fines, or death. Congress can and regularly does enact new laws which can change things going forward.

To put it simply, you're comparing something between two private entities with something between the government and a private entity. As it turns out, government and private entities are two different things, so the analogy isn't legitimate.

And I say all the above as one who is probably among the most negatively affected by the pending changes of anyone. My Mom was a big fan of the stretch IRA and my parents relied on that provision in their estate planning for about 20 years.

The lesson for me is to be aware that relying on laws remaining the same is a risk of some unknowable degree. To paraphrase an old saw, man plans and the government laughs.
 
wolf said:
Elimination of stretch IRA.

IMHO- I don't think everyone is getting it. A simple example. You take out a 30 year home mortgage. 15 years later, the Bank (Congress) decides, it made a mistake and is losing dollars.

So Bank (Congress) , says, we are changing the terms of the Mortgage/Contract. The Bank (Congress), Says, Even though you have 15 years to go, We want the home loan balance paid back in 5 years.

IMHO, only a few of you will understand? Again, just my 2 cents.
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No one signed a contract for the stretch IRA. I did sign a contract for my last mortgage.

The stretch IRA is in congressionally passed law and everyone understands that what congress enacts, congress can undo/change. Just like tax rates. They change from time to time. We're kind of used to tax laws changing because we've seen them change. The IRA related laws have also changed, but slowly (let's add Roth IRAs!, etc.) and were just not so used to them doing so - especially when we think the change hurts us or our heirs.
 
Not much you can do until something appears in the tax code except assume whatever is worst-case for you based on the reports and rumors. Hope it’ll be better.

In my case, I’m thinking my life expectancy will shrink to five years, as far as an inherited IRA is concerned. That’s what’s now in my spreadsheet but can be easily changed if something actually happens and takes effect in 2020.

[ADDED] I also try to remind myself that the total value of a traditional IRA when inherited is just a number on paper that ignored taxes that had not been paid. It feels good to say “I left $X million to so-and-so” but that’s a pretax number.
 
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I had inherited my father's TSP, which I had to roll over into an IRA. I made the mistake of choosing the 5 years option rather than RMDs over my life expectancy. This pushed us into the next higher tax bracket for those 5 years. However, it was still "found" money, although not in the way I wanted to find it. That said, I'm not sure I'd advocate making changes to anyone's estate plan because of potential changes to the law. Do what's right for your situation while you're alive. When you're gone, it's still money that your heirs didn't have before that will benefit them, after taxes.
 
My folks put 30 or 40 years of planning into the stretch IRA, all on the advice of attorneys and CPA's. They would have done it differently had they known the laws would change. It kind of feels like the heirs are getting robbed after the fact.

What this change and the change that will allow the annuity camel to get its' nose into the tent have convinced me of is the IRA and the 401(k) might not be good savings tools in the future. I believe now you will be forced at some point to annuitize your retirement savings, for the good of the tax coffers and the insurance company lobbyists. If I were working, I might rethink my savings strategy to lower the amount I was putting in tax deferred accounts and to increase he amount in taxable accounts, and more important, real estate.

I'm also going to rethink my withdrawal strategy. Although changes are probably less likely to affect IRA's than 401(k)'s, I might want to draw down the IRA's faster to avoid the annuity trap. Even if I don't do anything today, I'm going to keep a close eye on where these changes lead.
 
Are insurance lobbyists more powerful than FA lobbyists?

Another Reader said:
What this change and the change that will allow the annuity camel to get its' nose into the tent have convinced me of is the IRA and the 401(k) might not be good savings tools in the future. I believe now you will be forced at some point to annuitize your retirement savings, for the good of the tax coffers and the insurance company lobbyists. If I were working, I might rethink my savings strategy to lower the amount I was putting in tax deferred accounts and to increase he amount in taxable accounts, and more important, real estate.

I'm also going to rethink my withdrawal strategy. Although changes are probably less likely to affect IRA's than 401(k)'s, I might want to draw down the IRA's faster to avoid the annuity trap. Even if I don't do anything today, I'm going to keep a close eye on where these changes lead.
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Could you develop this point? Haven't insurers always been eligible to be IRA providers? Why would banks, brokers and mutual funds suddenly be elbowed out?
 
I expect the focus to be on creating a retirement income stream in the future, not on amassing a lump sum to do with whatever you want. This will likely happen in concert with the elimination/conversion of corporate and possibly government pensions, to limit liability. Might be some trimming of the government pensions to be "fair" and to reduce the liability of the various jurisdictions. Someone has to bail Illinois out...

You will be required to annuitize your savings to "protect your income," as you are "not capable of doing this by yourself and you need the safety of the insurance company management" and this will be the "fair and reasonable" way to achieve the income protection goal. The reality is insurance companies will be enriched, corporate and government liabilities will be reduced, and the tax dollars will make their way to government coffers faster and in a more predictable way.

ETA: Some redistribution of your money may be part of the plan. The money to clean up the messes has to come from somewhere. It will be hidden in the complex calculations and not discussed publicly.
 
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Another Reader said:
....You will be required to annuitize your savings to "protect your income," as you are "not capable of doing this by yourself and you need the safety of the insurance company management" and this will be the "fair and reasonable" way to achieve the income protection goal. ....
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I think that is delusional... will never happen. I worked in the industry. They are influential but not that influential unless things have changed a lot in the last 20 years.
 
Another Reader said:
I believe now you will be forced at some point to annuitize your retirement savings, for the good of the tax coffers and the insurance company lobbyists.
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I could see where incentives might be added to get more to annuitize but forcing it on people? I'd say the chances of that happening are slim and none. When you annuitize and die any remaining money goes to the insurance company.
 
pb4uski said:
I think that is delusional... will never happen. I worked in the industry. They are influential but not that influential unless things have changed a lot in the last 20 years.
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I think you fail to understand the magnitude of the problem and of the size and shape of the potential revenue stream.
 
There will also be the lobbyists for brokerage firms and advisory services battling for the other side. If everyone were forced to annuitize, then the brokerage and advisory firms would lose business, I think.
 
Any law change would take enough time so that if you're already RE nothing would stop you from liquidating your tax-deferred accounts & using them for something else than a forced annuitization...e.g. a large wire transfer to your now overseas retirement destination.
 
wolf said:
Elimination of stretch IRA.

IMHO- I don't think everyone is getting it. A simple example. You take out a 30 year home mortgage. 15 years later, the Bank (Congress) decides, it made a mistake and is losing dollars.

So Bank (Congress) , says, we are changing the terms of the Mortgage/Contract. The Bank (Congress), Says, Even though you have 15 years to go, We want the home loan balance paid back in 5 years.

IMHO, only a few of you will understand? Again, just my 2 cents.
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I think many of us (most?) are "getting it?" You're seeing a vocal minority wanting to let Uncle Sam off the hook on this one. I understand that tax laws change, and Washington has always used rule changes to encourage or discourage certain behaviors. That said, this time it was different. The IRA "contract" with the citizenry required us to lock up our money long term, with penalties for us "breaching" the contract by withdrawing early. We could have just bit the tax bullet and invested after tax (which had similar tax deferral benefits on compounded earnings and further offered the unbelievable perk of stepped up basis for heirs), but instead we bought into the overall IRA charade; fully believing it would be even better for our heirs. This is dirty pool no matter how they try to sugar coat it.
 
GrayHare said:
The benefits of the stretch IRA were already curtailed with 2018's changes to the kiddie tax. Those changes mean people under age 19, and many under 24, who receive more than $12,100 are taxed at the top marginal federal rate of 37% rather than at the rate of their parents.

https://www.forbes.com/sites/ashleaebeling/2018/05/08/the-kiddie-tax-grows-up/
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This in no way impacts the most common stretch manifestation, which is an elderly adult who leaves qualified assets via inherited IRA to adult children.
 
Another Reader said:
What this change and the change that will allow the annuity camel to get its' nose into the tent have convinced me of is the IRA and the 401(k) might not be good savings tools in the future.
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An experienced estate attorney once told me that qualified plans (such as IRA and 401k) are great savings tools but lousy estate planning tools. It looks like Washington is trying to make him more "right" about this.
 
FIREchief said:
An experienced estate attorney once told me that qualified plans (such as IRA and 401k) are great savings tools but lousy estate planning tools. It looks like Washington is trying to make him more "right" about this.
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The IRA and 401K were the 'Answer' to eliminating Pensions. -- IMO, they came up way short..... Similar to 'Private Accounts' instead of Social Security.
 
wolf said:
Elimination of stretch IRA.

IMHO- I don't think everyone is getting it. A simple example. You take out a 30 year home mortgage. 15 years later, the Bank (Congress) decides, it made a mistake and is losing dollars.

So Bank (Congress) , says, we are changing the terms of the Mortgage/Contract. The Bank (Congress), Says, Even though you have 15 years to go, We want the home loan balance paid back in 5 years.

IMHO, only a few of you will understand? Again, just my 2 cents.
Click to expand...

Show me the contract you have with Congress and point out where it says that they cannot change the laws. Then I'll understand.

Oh, you don't have a contract? You just assumed that things would stay the same. I think I do understand.
 
It will be interesting to see by how much tIRA and t401k contribs decline if this new law takes effect. I would stop making tIRA contribs unless I could cheaply Rothify them, and I would reduce t401k contribs to no more than the level of the employer match.
 
GrayHare said:
It will be interesting to see by how much tIRA and t401k contribs decline if this new law takes effect. I would stop making tIRA contribs unless I could cheaply Rothify them, and I would reduce t401k contribs to no more than the level of the employer match.
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I got in trouble last time I tried to "guess" at an answer, but anyway, my guess is it would have almost zero affect. Due to the fact that the vast majority (again a guess) of 401K and IRA participants don't have a clue that the "stretch" provision for non spousal beneficiaries is even a "thing".
 
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