Senate Finace Committee Votes 26-0 to Kill Stretch IRA

[MrLoco]

Recently, the Senate Finance Committee voted 26-0 to do away with the option for non-spouse beneficiaries of a Traditional IRA to stretch the payments over their lifetime using the Single Life Expectancy Table.

Chances are very good this will become law in 2017 or 2018 and the only remaining options will be for a beneficiary to take the money out all at once or over a 5 year period. Still bad news for those of us who have millions in a Trad. IRA with the desire to pass the money to children/grandchildren.

There will be a $450,000 exemption but still beneficiaries will be hit with an enormous tax bill in many cases. So what can we do?

1) Increase Trad. to Roth Conversions to reduce the amount in a Trad. IRA. Sure I am already doing this and may ramp it up a little but one needs to use money outside of the conversion amount for maximum benefit. And who knows how Uncle Sam will screw us on our ROTH's in the future.

2) Do not allow the Trad. IRA to grow untouched until RMD's are required at 70 1/2. Spend down the Trad. IRA instead of spending down from taxable accounts. This helps as beneficaries would inherit taxable accounts at a stepped up cost basis (for now until Uncle Sam changes the rules).

Anything else we can do? I'm sure others have the same concern who have large Trad. IRA balances that they hope to pass onto heirs.

 

[MichaelB]

This topic was discussed 2 1/2 months ago (and the thread was closed).
http://www.early-retirement.org/for...-approves-bipartisan-pension-bills-83659.html

 

[harley]

So this didn't effect the Roth? The beneficiary can still stretch it? I suspect even if this is true, it won't be for long. But at least the beneficiary will be able to withdraw it all without the tax hit.

I have been doing Roth conversions for the past 10 years trying to get as much out of the t-IRA as possible. However, because of my t-IRA riding the bull market I've still got more in there than I started with. Also, being overly successful at creating a cash flow of retirement income I don't have enough leeway now to do significant conversions in the 15% bracket. I've reached the age I can draw from the t-IRA, so I think from now on I'll just do that to fill out the 15% bracket and any other money needs I might have. Other than that, it's just one of those first world problems that my DD will have to suck up.

 

[HadEnuff]

Does this change IRAs that have already been inherited?

 

[frayne]

Instead of one IRA with a boat load of dinero could you have say, four or five different IRAs in order to keep under the $450 exemption amount ?

Just a thought.

 

[GrayHare]

One too many Ed Slott PBS Fund Raising shows. (For those who never watch PBS, Ed Slott greatly popularized the Stretch IRA approach.)

 

[HadEnuff]

Instead of one IRA with a boat load of dinero could you have say, four or five different IRAs in order to keep under the $450 exemption amount ?

Just a thought.

the article that I read stated the exclusion amount (450K)applied to the "aggregate" account balances of ALL IRAs, 401ks, defined contribution benefits"...so , no, I don't think that approach would exempt any funds.

When my Dad died in 2012 I was surprised to learn that the RMD applied to a Roth IRA, as well as his traditional IRA. So, I'd be surprised if inherited Roth IRAs were treated any differently.
I could never figure out WHY Roth IRAs were subject to the same RMD schedule since it didn't raise any revenue, as the distributions are still tax free.

 

[GrayHare]

I could never figure out WHY Roth IRAs were subject to the same RMD schedule since it didn't raise any revenue, as the distributions are still tax free.

Without an RMD all the Roth money could be left to grow tax free, whereas growth on an RMD (moved out of the Roth IRA umbrella) becomes subject to tax.

 

[sheehs1]

I know it is not wise to have an IRA inside an annuity but with this possible change, I'm wondering.... if one does this close to our children inheriting it, if the annuitization process inside the annuity would have the same restrictions. I'm sure our government covered all the bases but ...it is a question since annuity companies want to hang onto the money as long as possible.

Disclaimer: I don't like annuities and don't have one but have used one in the past as a wealth transfer vehicle with my mother's trust...now dissolved.

 

[HadEnuff]

Without an RMD all the Roth money could be left to grow tax free, whereas growth on an RMD (moved out of the Roth IRA umbrella) becomes subject to tax.

OK, that makes sense.

 

[Winemaker]

Does this change IRAs that have already been inherited?

This has not become law yet. Contact your Congressmen/women and give them an ear full.

 

[HadEnuff]

I know it is not wise to have an IRA inside an annuity but with this possible change, I'm wondering.... if one does this close to our children inheriting it, if the annuitization process inside the annuity would have the same restrictions. I'm sure our government covered all the bases but ...it is a question since annuity companies want to hang onto the money as long as possible.

Disclaimer: I don't like annuities and don't have one but have used one in the past as a wealth transfer vehicle with my mother's trust...now dissolved.

I thought annuities provided income while you were living, but when you die, the annuity company keeps all the money. How are they used as a vehicle for wealth transfer?

 

[rodi]

Thank you for your discussion.