SECURE Act - your thoughts

[meierlde]

That's one interpretation... the key question is what the law originally intended... I suggest that the lifetime provisions for non-spouse beneficiaries were originally intended for the next generation... kids, nieces and nephews... and NOT for grandchildren and great-grandchildren which is what was advocated by some clever lawyers and CPAs based on how the law was originally written.

Under that view, the SECURE Act is just closing that loophole... but I'll concede that with 10 years that they probably overdid it.

Actually this is consistent with the change way back when in leaving an inheritance to grandchildren without paying a second inheritance tax on the second transfer (thru a trust). In 1972 this was still the law, but in 1976 the generation skipping transfer tax was enacted, again resulting in folks having to make lots of estate transfer tax. It is part of the long term trend against perpetuties in the law.

The stretch IRA/401k was not intended to be used as an estate tool when enacted but smart lawyers figured out that id did work.



Actually this change might help the charitable remainder trust business, as you get what amounts to an annunity, but then when you die the charity gets the remainder. (or you could of course name the charity as the beneficiary of the 401k, )

 

[statsman]

My DW's birthday is in December (currently 67), so it appears she will get an one-year delay on the start of the RMDs for her IRA. Those born in the first six months of the year will get a two-year delay.

 

[Gumby]

Those born in the first six months of the year will get a two-year delay.

That's because we're extra special.

 

[FIREchief]

At least the reasons to convert to Roth remain, and perhaps have been increased.

I believe that you are correct, particularly for those who plan to leave qualified assets in trust.

 

[statsman]

Won't any non-spouse inherited Roth still have to be cashed out within 10 years? If so, what would appear to be lost is the ability to continue earning with the Roth tax-free for an indefinite period of time (currently drawn down only by an inherited IRA's RMD, which I now guess no longer exists under this bill).

 

[Alexi]

Congress Just Passed the Biggest Retirement Bill in More Than a Decade.

Here's What You Need to Know

https://money.com/what-serure-act-retirement-law-means-for-you/

 

[FIREchief]

Won't any non-spouse inherited Roth still have to be cashed out within 10 years? If so, what would appear to be lost is the ability to continue earning with the Roth tax-free for an indefinite period of time (currently drawn down only by an inherited IRA's RMD, which I now guess no longer exists under this bill).

I believe that it would. That said, if significant Roth assets are left in an accumulation trust; that trust could wait until year ten and then withdraw (but not distribute) the Roth assets and retain them in a tax-efficient after tax investment (e.g. VTI). No taxes would be immediately due and the trust would just pay favorable capital gains taxes on any qualified dividends that were paid out, but not distributed to the trust beneficiaries, in the ensuring years. The parallel could likely be accomplished outside of a trust, but without any asset protection. There would still be significant tax deferral, but ultimately no step-up on the trust owned after-tax assets. Depending upon the age of the primary beneficiaries, the ten year payout could provide similar benefits to today's lifetime stretch in such a scenario (i.e. consider a 63 year old beneficiary with a life expectancy of 20 years).

 

[Alexi]

Here's a recent related topic [Has it already been discussed here ?]

IRS Proposes New RMD Life Expectancy Tables To Begin In 2021

https://www.kitces.com/blog/irs-proposes-new-rmd-life-expectancy-tables-to-begin-in-2021/

 

[SecondCor521]

Here's a recent related topic [Has it already been discussed here ?]

IRS Proposes New RMD Life Expectancy Tables To Begin In 2021

https://www.kitces.com/blog/irs-proposes-new-rmd-life-expectancy-tables-to-begin-in-2021/

Yes, but not on this thread, and rehashing topics is considered normal, so no worries.

 

[cathy63]

My DW's birthday is in December (currently 67), so it appears she will get an one-year delay on the start of the RMDs for her IRA. Those born in the first six months of the year will get a two-year delay.

Yep, DH's birthday is tomorrow and mine is 3 weeks from tomorrow. He gets the one year delay and I get the two year delay.

 

[rodi]

Annuity salesmen prowl the halls of schools. With the "SECURE ACT", they can cut back the travel and prowl 401(k)s. Big big new hunting ground.

Love the naming of congressional bills... if one comes out that totally guts the Clean Air Act, it probably will have a moniker like "The Pure Air Act". After all, who would be against "Pure Air?"

Do you live in San Diego? We have a very expensive municipal water project underway called "Pure Water". That is the name they selected after "Toilet to Tap" didn't test well. It's recycled sewage to potable water.

 

[CRLLS]

That's one interpretation... the key question is what the law originally intended... I suggest that the lifetime provisions for non-spouse beneficiaries were originally intended for the next generation... kids, nieces and nephews... and NOT for grandchildren and great-grandchildren which is what was advocated by some clever lawyers and CPAs based on how the law was originally written.

Under that view, the SECURE Act is just closing that loophole... but I'll concede that with 10 years that they probably overdid it.

I believe that it is a stretch to say that this is not what the original intent was. As many pieces of legislation are a compilation of many special interest groups’ input, it may very well have been intended in its final form in order to get the votes required to turn it into law.
Unless one was part of the congress during the voting, we will never know one way or the other. Regardless of the intent, the bottom line is that what was written into law can be, and appears to have been, erased.

 

[CardsFan]

Do you live in San Diego? We have a very expensive municipal water project underway called "Pure Water". That is the name they selected after "Toilet to Tap" didn't test well. It's recycled sewage to potable water.

Please tell us your kidding about "toilet to tap". Even a politician can't be that dumb.

 

[Gumby]

Please tell us your kidding about "toilet to tap". Even a politician can't be that dumb.

I'd go with the slogan "Don't waste a drop."

 

[cathy63]

Please tell us your kidding about "toilet to tap". Even a politician can't be that dumb.

I wouldn't say that politicians can't be that dumb. Wasn't it just South Dakota that went with the slogan "Meth, we're on it."?

Anyway, "toilet to tap" has never been the real name of the water recycling program. It was nicknamed that by some wily politicians who didn't want the program to go ahead for various reasons. Here's the story as told by a locally well known San Diego reporter in 2010: https://www.kpbs.org/news/2010/aug/04/political-analysis-legacy-toilet-tap/

CAVANAUGH: …in San Diego. Now one of the big bumps in that history, Gloria, was when the plan got dubbed toilet to tap. Tell us how that happened.

PENNER: I had to do some interesting research and I finally came up with it. It came from a man named Gerald Silver. He was an angry Encino homeowner’s association president who used the phrase in 1995 during a debate over IPR, again IPR is the Indirect Potable Reuse project, and that was in Los Angeles. So there was a debate and somehow he came up with it. You know, I don’t want my water going from my toilet to the tap. And it quickly became the term that most opponents used to refer to the idea of IPR. And then in San Diego when the plan was put to public review in 1998, all that – 12 years ago? 13 years ago? Angry protestors including then—get this—city council member George Stevens, Assembly member Howard Wayne, who’s running for political office this year, and former San Diego City Council member Bruce Henderson, they used the term to state their opposition to IPR and it was born again in San Diego.

CAVANAUGH: That name practically destroyed the issue in San Diego.

PENNER: It did. Yeah.

 

[USGrant1962]

I wouldn't say that politicians can't be that dumb. Wasn't it just South Dakota that went with the slogan "Meth, we're on it."?

That was a viral hit - and that was the point. Good marketing.

 

[pb4uski]

I believe that it is a stretch to say that this is not what the original intent was. As many pieces of legislation are a compilation of many special interest groups’ input, it may very well have been intended in its final form in order to get the votes required to turn it into law.
Unless one was part of the congress during the voting, we will never know one way or the other. Regardless of the intent, the bottom line is that what was written into law can be, and appears to have been, erased.

Totally wrong. IRAs were first established in 1974. The stretch IRA arose as a result of a private letter ruling in 1999. If the stretch was part of the original intent then there would not have been 25 years between the two. Do your homework.

IRAs were established by legislation passed in 1974. Traditional individual retirement accounts (IRAs) first became available in 1975.

The Multi Generational “Stretch IRA” concept is not brand new. It has been around since 1999 when the Internal Revenue Service, in a Private Letter Ruling, stated that a man who inherited his mother’s seven-figure IRA could name his own beneficiaries.

The Stretch IRA concept was refined further in 2001 when the IRS simplified IRA guidelines and did away with most of the old complex pay-out rules. This included the landmark revision of the Required Minimum Distribution Table for IRA owners. Lower Required Minimum Distributions (RMD) allowed IRA owners to reduce the amount of withdrawals and consequent income taxes on mandatory distributions.

 

[Sunset]

Won't any non-spouse inherited Roth still have to be cashed out within 10 years? If so, what would appear to be lost is the ability to continue earning with the Roth tax-free for an indefinite period of time (currently drawn down only by an inherited IRA's RMD, which I now guess no longer exists under this bill).

So take the money out of the Roth as required, and buy non-dividend paying collection of stocks, example BRK.B
Then there will be no tax increase, and the money will compound until needed where it will face capital gains rates of 0% -> 15%.

 

[Sunset]

Do you live in San Diego? We have a very expensive municipal water project underway called "Pure Water". That is the name they selected after "Toilet to Tap" didn't test well. It's recycled sewage to potable water.

Wow.....such a slimy trick, like "Work sets you free"

 

[Another Reader]

As I understand the original bills, they did not affect inherited IRA's already in place. A couple of comments here seem to indicate that the final bill (soon to be law) does include inherited IRA's resulting from deaths prior to the passage of the final bill. Can someone clarify and point to the effective commencement date (presumably the date of death still controls)?

 

[Big_Hitter]

has anyone made it through the 1800 pages yet? I think the age 72 RMD is only for those who turn 72 after 12/31/19?

 

[Winemaker]

Do you live in San Diego? We have a very expensive municipal water project underway called "Pure Water". That is the name they selected after "Toilet to Tap" didn't test well. It's recycled sewage to potable water.

We all have a "toilet to tap" system. All municipal waste is screened,treated, seperated, filtered, and put back into to water courses where it is diluted and used again downstream.

 

[kgtest]

has anyone made it through the 1800 pages yet? I think the age 72 RMD is only for those who turn 72 after 12/31/19?

No where is the bill. I'll help go through it

 

[Andre1969]

I've been strategically withdrawing from my taxable IRAs for the past several years to ease the future RMD tax burden. Under the SECURE Act, I will get an extra two years to continue to do so.

I've been thinking about doing that, as well, once I hit 59.5. Actually, I guess it would benefit me to start doing a Roth conversion as soon as I retire. I never really ran the numbers until now, and it was a bit of an eye opener.

Even if I was to retire now (age 49) and defer taking SS until 70.5, and my 401k/IRA accounts did not appreciate any further, the RMD plus SS would still put me over $50K per year. I'll only be working (hopefully) a few more years, so I won't be investing much more into the 401k, but it would be foolish to presume that ~20 years of compounding wouldn't make it swell considerably.

Still, I guess there's worse problems to have.

 

[gwraigty]

As I understand the original bills, they did not affect inherited IRA's already in place. A couple of comments here seem to indicate that the final bill (soon to be law) does include inherited IRA's resulting from deaths prior to the passage of the final bill. Can someone clarify and point to the effective commencement date (presumably the date of death still controls)?

https://www.cnbc.com/2019/12/17/lawmakers-may-kill-this-popular-retirement-tax-break-for-the-wealthy.html

Taxpayers who inherit a retirement account from an account owner who dies after Dec. 31, 2019 would be subject to the new distribution rules. Accounts of those who die before the end of the year would be subject to the old distribution rules.