RMD going to 72?

[audreyh1]

Would be nice if this would pass. In 2030, I will be 70.

I would hit the 72 RMD age in 2031, so I guess I could wait until 75 then! Which would be 2034.

DH, however, would hit 72 before 2030, so he would have to start RMDs by 2027.

 

[ziggy29]

I would hit the 72 RMD age in 2031, so I guess I could wait until 75 then!

Yeah, it appears that this bill would change the RMD age to 75 for anyone born in, or after, 1955, "sort of". (If I am parsing the "transition rule" portion correctly). For sure it applies to anyone born in 1958 or later.)

The "transition rule" piece of this is confusing to me. It makes it sounds like someone born in (say) 1957 would have to take an RMD in 2029 (age 72) but not in 2030 or 2031 (age 73-74), and then resuming RMDs in 2032 (age 75). Can anyone figure out what this is really saying? If that is the case, people born in 1956 and 1957 would have an RMD "donut hole".

(ii) TRANSITION RULE.—If, as of a calendar year, an employee has not attained the applicable age with respect to such year, such employee shall be treated as not having attained the applicable age under this paragraph for such year without regard to whether, in a previous calendar year, the employee had attained the applicable age with respect to such previous calendar year.

 

[Dtail]

I would hit the 72 RMD age in 2031, so I guess I could wait until 75 then! Which would be 2034.

DH, however, would hit 72 before 2030, so he would have to start RMDs by 2027.

So would the distribution rates (3.65% in the first year,etc) start the same at 75 y.o., or will the % be greater/less?

 

[SecondCor521]

So would the distribution rates (3.65% in the first year,etc) start the same at 75 y.o., or will the % be greater/less?

The bill text linked earlier has a section 109 that says that the mortality tables would be updated as part of the bill. So who knows, but my guess would be that the divisor at 75 would be equal to or larger than the current 75 divisor - meaning smaller RMDs.

 

[ziggy29]

So would the distribution rates (3.65% in the first year,etc) start the same at 75 y.o., or will the % be greater/less?

As best as I can tell, it would still use mortality tables, but (a) these tables would have to be updated within a year of passage of this bill into law, and (b) the mortality tables have to be updated at least once every 10 years.

That said, life expectancies are pretty stagnant right now, so barring any medical breakthroughs that prevent or delay a lot of deaths from disease, they may not change all that much.

 

[Helena]

It would sure help the discussion to link the actual bill and not just a media report.

Yes, it would. I searched for it, but couldn't find it on the government website. Probably because it was just filed a few days ago. The bill number is S 1431

The Senate bill delaying RMD age 72 to 2023 shuts me out of the benefit. Ironically, it also shuts out one of my US senators who was also born the same year. I contacted his office to voice my opinion.

.

 

[pb4uski]

It would be nice to defer that tax torpedo a bit.

 

[audreyh1]

It would be nice to defer that tax torpedo a bit.

Yeah, pretty much our benefit, including not having SS and RMDs start at the same time.

 

[FIREchief]

I'm sure a lot of you recall that these bills are nothing new. They've been floating around both houses for several years. I believe that in late 2015 we had similar reports of unanimous passing of bills in bipartisan subcommittees that were going to eliminate the stretch IRAs. It didn't happen then and I'm really hoping it doesn't now. That said, it's likely only a matter of time so we might as well just get on with it. The House's ten year total cash out appears more reasonable to me than the Senate's five year/except $400K version, if for no other reason than the $400K would likely just get taken back the next go around.

Stating the obvious, this is within Congress's power. Morally/ethically (which has little relevance) they're taking away a carrot that was out there for decades. The reason for the original rules? "To encourage/increase savings." The reason for the new rules? "To encourage/increase savings." I guess savings is bad unless it helps the government out of a financial jam. How dare we try to give our children the basis of a good retirement when Washington needs the money to bail out somebody who never saved a dime.

 

[davebarnes]

Don’t care.
See signature.

 

[RobbieB]

Don't care either. No big deal.

 

[joeea]

How dare we try to give our children the basis of a good retirement when Washington needs the money to bail out somebody who never saved a dime.

How does changing the point in time after which your taxes are no longer deferred give your children the basis of a good retirement?

Obviously it has nothing to do with bailing out somebody who never saved a dime.

 

[copyright1997reloaded]

How does changing the point in time after which your taxes are no longer deferred give your children the basis of a good retirement?

Let's say I have $2 Million in a 401k and I kick today under the current tax laws. My child (say age 18 to make this discussion easier) inherits the 401k and can take RMD's over their expected lifetime. The 401k is likely to grow faster than their RMD's (at least for a good number of years). Under the out in five proposal, their RMD would need to be $400K plus a year, so their tax rate is much higher and at 18 not such a good idea.

The point is that I may have been accumulating funds in the 401K because of the stretch provision, and taking that away has a major negative impact in planning for my children's future retirement.

 

[tn3sport]

What really needs to be part of that bill is to make SSA tax thresholds indexed for inflation. It was set at $33k (individual) in 1984 and has not changed since.



$33k in 1984 is not the same as $33k in 2019.



If it was indexed, your income threshold that triggers SSA taxes would go up every year. Just like COLA, inflation, and standard deductions. Thus, your SSA benefits would not be so likely to get hit with taxes.



That's a reasonable change and one our elected officials should be working on.

 

[zinger1457]

What really needs to be part of that bill is to make SSA tax thresholds indexed for inflation. It was set at $33k (individual) in 1984 and has not changed since.

$33k in 1984 is not the same as $33k in 2019.

My understanding is the current threshold limits were set in the 90's under Clinton, for single 50% at $25K and 85% at $34K. Wouldn't hold my breath waiting the threshold limits to increase, with the hole SS is in or approaching there's probably a better chance they will decrease.

 

[joeea]

The point is that I may have been accumulating funds in the 401K because of the stretch provision, and taking that away has a major negative impact in planning for my children's future retirement.

That's your point?

Yup. Changing the rules means we have to change our plans sometimes.

So if the rules actually change, you'll have to find a different way to give your children the basis of a good retirement. Or your children will have to give themselves the basis of a good retirement themselves.

I'm still not seeing how this has anything to do with bailing out somebody who never saved a dime.

 

[joeea]

What really needs to be part of that bill is to make SSA tax thresholds indexed for inflation. It was set at $33k (individual) in 1984 and has not changed since.

That's a very reasonable idea. IMHO, many more things should be indexed to inflation.

Of course that would result in less net taxes than today, so more would have to come from someplace else to offset the loss.

 

[ShokWaveRider]

Why have any limit or deadline? They would be better off when the owner Karks it, as tax will need to be paid on the whole amount when inherited by anyone other than a spouse. At least that is what happened to us with my mother in law.

 

[FIREchief]

Why have any limit or deadline? They would be better off when the owner Karks it, as tax will need to be paid on the whole amount when inherited by anyone other than a spouse.

Well, for one thing, it's because that was one of the carrots Washington used decades ago to convince a lot of us to save aggressively for our own retirements. The message was, "don't worry about over saving as we'll let you pass on residual benefits to your heirs." That carrot is now starting to discolor.

At least that is what happened to us with my mother in law.

Are you referring to qualified retirement plan assets?

 

[FIREchief]

I'm still not seeing how this has anything to do with bailing out somebody who never saved a dime.

That was hyperbole. The point was that they are changing the rules and paying for it by removing a financial benefit from aggressive savers that has always been part of the "game." It would be different if it only applied to future contributions to tax-deferred investments. Tax deferral has been the incentive and now, after several decades, they're planning to take back a significant chunk of that.

The revenue generated will be redistributed to others who haven't saved enough and need to work longer, save more going forward, etc.

 

[ShokWaveRider]

Are you referring to qualified retirement plan assets?

Yes, the tax was deducted prior to distribution to the heirs (sons and daughters).

 

[FIREchief]

Yes, the tax was deducted prior to distribution to the heirs (sons and daughters).

Thanks. Sounds like that was a choice and not a requirement of the tax laws.

 

[ShokWaveRider]

Maybe, it was DW's family that managed it.

 

[joeea]

That was hyperbole.

Oh, hyperbole!

The point was that they are changing the rules and paying for it by removing a financial benefit from aggressive savers that has always been part of the "game."

They are changing the rules so that they can bail out everyone who never saved a dime? That's hyperbole too, right?

It would be different if it only applied to future contributions to tax-deferred investments. Tax deferral has been the incentive and now, after several decades, they're planning to take back a significant chunk of that.

Have these changed passed? And these are the changes that will prevent you from giving your children the basis of a good retirement?

The revenue generated will be redistributed to others who haven't saved enough and need to work longer, save more going forward, etc.

So these are the ones you mean when you said "haven't saved a dime"?

 

[copyright1997reloaded]

Yes, the tax was deducted prior to distribution to the heirs (sons and daughters).

This doesn't make a lot of sense, unless some critical information is missing here. One of the benefits of a tIRA or 401K is that when there are named beneficiaries, that that remainder can be taken out over the life of the beneficiary.
https://www.investopedia.com/terms/s/stretch-ira.asp

Non-spousal heirs of any age, regardless of the type of IRA, must take RMDs based on their life expectancy (rules for inherited IRAs are different for spouses and non-spouses). The younger the beneficiary, the lower the RMD, which allows more funds to remain in the IRA to stretch the IRA over time. This is why many stretch IRAs are passed to the youngest member of a family.

A mistake that can be made is to name the estate as the IRA beneficiary: https://www.irahelp.com/slottreport/why-you-should-not-name-your-estate-ira-beneficiary

Under IRS rules, your estate is not considered a “designated beneficiary” which means it has no life expectancy and can’t take advantage of the “stretch IRA” concept. So, if you die before your required beginning date (April 1 of the year after you turn age 70 ½), the IRA will have to pay out all funds to the estate within five years. If you die after your required beginning date, your IRA will have to make distributions to the estate over your remaining single life expectancy. What this all means for the beneficiaries who eventually get your IRA funds through your estate is that they’ll have to take the funds sooner, and thus likely pay more taxes than if you had named than as the direct beneficiary of your IRA.

So perhaps the IRA owner made a (big) boo-boo?