RMD going to 72?

[pb4uski]

But, what if one takes the money out of the tIRA and converts it to a Roth instead? Long term one might come out ahead by no longer being taxed on future gains. Or am I missing something?

Yes you are missing something. If the tax rate is the same and the taxes come out of the tIRA then it is a wash for same reason.

We've used the example of a $10k tIRA and 15% in taxes and investments double in 10 years. Convert today and your $10k tIRA becomes a $8.5k Roth and doubles to $17k in 10 years. Don't convert and your $10k tIRA today becomes a $20k tIRA in 10 years that is worth $17k after you withdraw and pay the tax.

Now if you pay the taxes from taxable funds that you have there is a slight benefit... but at the end of the day it is mostly a tax rate arbitrage play.

 

[SecondCor521]

Who knows what they may come up with? All of us can only react and plan as best we can.

Not sure how much influence it has, but we can also contact our elected representatives and consider their actions when we vote. The ambitious among us can also run for office ourselves.

But yeah, mostly just react to what they decide.

 

[Helena]

And then the president still needs to sign it or not.

Unless the Senate gets crazy adding to/deleting from the popular House bill that just passed with an overwhelming bipartisan vote... President Trump will sign it.

President Trump initiated this with his August 2018 EO

"Executive Order on Strengthening Retirement Security in America"

Issued on: August 31, 2018

https://www.whitehouse.gov/presiden...er-strengthening-retirement-security-america/

.

 

[RunningBum]

Ok, we disagree... not the first time nor the last I suspect. I never said that it was accidental. Remember, evenything was new.... I kinda doubt that Congress was thinking forward 30-50 years to what might happen and that many Americans would have saved and had IRA that grew to millions of $$$$. I'm guessing that the stretch IRA was a bit of an afterthought assuming that the owners or spouse's kids would inherit IRAs that would be not be all that significant after withdrawals and RMDs and not that the owner or surviving spouse would get clever and make their young grandchildren beneficiaries. I think that practice is being targeted in this legislation, and I think it should be.

I'm not sure many of us would have predicted that so many people would have such large IRAs, but the investment markets were generous.

OK, I altered "unintended" to "accidental", but I think you're using unintended to refer to the degree at which the deferral happens--more money, and a longer time. So now they are reigning this back in, basically admitting their lack of foresight, by shortening the stretch IRA. I can agree with that, though it's unfortunate for those who made plans based on the law they made.

 

[MrLoco]

OK, I altered "unintended" to "accidental", but I think you're using unintended to refer to the degree at which the deferral happens--more money, and a longer time. So now they are reigning this back in, basically admitting their lack of foresight, by shortening the stretch IRA. I can agree with that, though it's unfortunate for those who made plans based on the law they made.

I agree with you RunningBum. I have a large Trad. IRA. I have been converting annually to a ROTH but I will never be able to convert all of it or even half. Not sure I would even want to as I am sure that somehow additional taxes on Roths may be targeted in future years for heirs. Don't think it can't happen.



As I pointed out already in this thread. This is not the end of the tax man's money grab. Next we will probably see the elimination of the step up in basis on inherited assets.



I know many don't care or do not have children/grandchildren but we do and we vote our pocketbook.

 

[RunningBum]

As I pointed out already in this thread. This is not the end of the tax man's money grab. Next we will probably see the elimination of the step up in basis on inherited assets.

OK, but talking about possible future tax law changes that aren't currently under proposal is specifically not allowed in this forum and is a quick way to get a thread shut down, so please don't.

 

[googily]

Here's a question. In these days of such dug-in opinions on both sides of the aisle, why is this happening with such overwhelming bipartisan support? Not trying to talk about nefarious intent, just wondering why everyone thinks that people who are coming from such different places when it comes to government taxation are ready to move together to get this done?

I think some of it is simplifying the whole RMD thing for non-spouses (especially with the House bill, which sounds like the one that is going to make it through). Here's this money--you've got 10 years to take it out.

Are the big firms wanting to get into the 401k annuity business? That seems like the other big piece.

Just an interesting thought exercise, because "the government wants more of your money" is not necessarily a guiding principle on Capitol Hill these days.

(And, for the record, I don't really care about this. Nice to bump RMDs a few more years away, and the one IRA I'm probably going to inherit in a few years isn't all that big, and my heirs, well, I have no kids so the relatives and friends who are going to benefit can just live with the hell of having to pay taxes on my generosity.)

 

[GrayHare]

Here's a question. In these days of such dug-in opinions on both sides of the aisle, why is this happening with such overwhelming bipartisan support? Not trying to talk about nefarious intent, just wondering why everyone thinks that people who are coming from such different places when it comes to government taxation are ready to move together to get this done?

I suspect 90% of the voting public under age 70 does not even know what an RMD is, so it's an easy place to tinker with the tax code.

 

[Helena]

Here's a question. In these days of such dug-in opinions on both sides of the aisle, why is this happening with such overwhelming bipartisan support?

I'm grateful for the overwhelming bipartisan support for this House bill.

What aggravates me is neither FOX [or FOX Business] nor CNN, etc have time to report and discuss this bill [or other bills affecting the American people] because they are too busy fighting each other along partisan lines. Now I just turn off that circus and get the news that interest me on line.

.

 

[golfnut]

I agree but these channels air what people apparently want to see - political cat fights.

 

[joeea]

Unless the Senate gets crazy adding to/deleting from the popular House bill that just passed with an overwhelming bipartisan vote... President Trump will sign it.

Let's just say that this wouldn't be the first time the president has changed his mind on legislation he has supported.

 

[steelyman]

Nightly Business Report on PBS mentioned the bills last night but omitted anything about inherited IRAs. They focused on the more positive aspects for retirement savers, small business, etc.

 

[Another Reader]

Congress explicitly changed the rules on stretch IRA's, encouraging savings and tax planning for inheritance. Now they want to change them again because they are losing too much revenue.

When you implement something like that, you should allow for what you previously promoted. Don't screw over the taxpayers that saved and planned based on the rules you set. That's tantamount to entrapment.

Hope the estate tax does not drop to the old levels in 2025 when the current rate expires. Heirs could be screwed over twice if that happens. Pay estate tax and then pay income tax at a higher rate when they take the distributions.

As far as this provision being written in to pay for the cost of raising the RMD age one to two years, that's ridiculous. It's a revenue grab, pure and simple. People will take less out of their IRA's while alive and there will be a bigger pile to tax once the original owners die. That money will return to the Treasury faster and at a higher rate under the new plan.

 

[pb4uski]

Congress explicitly changed the rules on stretch IRA's, encouraging savings and tax planning for inheritance. ....

Do you have a citation or evidence for this statement or is it just your opinion?

Also, when did this alleged change happen?

 

[Helena]

I agree but these channels air what people apparently want to see - political cat fights.

What people want to see... or what they want people to see.

In ancient Rome, the government intentionally diverted the peoples' attention by entertaining them with gladiator games... or what Roman Juvenal called, "bread and circuses."

.

 

[joeea]

Hope the estate tax does not drop to the old levels in 2025 when the current rate expires.

But you saved and planned for the old levels, right?

So which way does the "entrapment" work?

 

[joeea]

What people want to see... or what they want people to see.

In ancient Rome, the government intentionally diverted the peoples' attention by entertaining them with gladiator games... or what Roman Juvenal called, "bread and circuses."
.

With a few exceptions, the government and the television networks aren't the same thing.

 

[Another Reader]

Do you have a citation or evidence for this statement or is it just your opinion?

Also, when did this alleged change happen?

I don't recall when it happened. Why else would the stretch IRA have been invented?

 

[Another Reader]

To me, this bill appears to be about raising revenue and letting the insurance company foxes into the hen house. The focus on annuities and the movement away from allowing heirs some benefits to inheriting is troubling. In the long term, the retirement pendulum may swing back to nothing but annuities. You may be required to annuitize your 401(k) when you leave employment or if you are allowed to take it with you, you will have to annuitize the entire pot of money when you "retire." Same with your IRA's. Instead of your company providing the annuity, some insurance company options will be offered. You pick one. That solves the problem of transferring the accounts to your heirs and insures money arrives at the Treasury in a regular, predictable amount.

 

[golfnut]

What people want to see... or what they want people to see.

In ancient Rome, the government intentionally diverted the peoples' attention by entertaining them with gladiator games... or what Roman Juvenal called, "bread and circuses."

.

Networks are like any other biz. They look for what makes the most $$$.
Unfortunately, it appears alot of us Americans find the real issues boring.


I wish there was a channel that offered bipartisan news on important issues instead of the daily cr+p on now. I'm sure networks have thought of this and said - we can make more money televising you know what.

 

[pb4uski]

I don't recall when it happened. Why else would the stretch IRA have been invented?

It wasn't really invented, per se. It was an outcome of the IRA rules for beneficiaries that were pretty simple... a spouse beneficiary had to withdraw under the rules that would normally apply to them and non-spouse beneficiaries would have to withdraw over their lifetime (like RMDs). Makes perfect sense to a 1974 legislator.

Then someone gets clever and devises a strategy to defer taxes even longer.. by naming a grandchild or great-grandchild as a beneficiary.

A stretch IRA is a way to limit required distributions on an inherited IRA, avoiding a sizable tax bill in the process. Instead of naming his or her spouse as the IRA’s beneficiary, an account holder can name children, grandchildren or great-grandchildren. This stretches the lifespan of the IRA, extending its tax-deferred growth for years or decades beyond the life of the original accountholder. ...

The stretch IRA takes advantage of the fact that younger beneficiaries have smaller RMDs. With a stretch IRA, account holders name their youngest relatives as beneficiaries. Well-to-do folks who know that their spouses have enough money to get by can preserve and extend their family’s fortune by naming children, grandchildren and great-grandchildren as IRA beneficiaries. Those younger relatives then take RMDs that are small enough to trigger minimal taxes. The rest of the inherited account can continue to grow tax-deferred and increase in value. It’s a form of inter-generational wealth transfer with serious tax advantages. ...

 

[Another Reader]

Looks to me the beneficiary rules were designed to accomplish this. Otherwise, why would they exist for non-spouse beneficiaries? It does not seem like someone "got clever after the fact."

It's possible in 1974 the drafters did not envision a world where 401(k)'s and IRA's would be the main sources of retirement income. They may have thought because of pensions only high level employees would have much in these accounts. But that does not change the intent, which was to allow heirs to benefit from tax deferral on the accrued savings.

 

[joeea]

You may be required to annuitize your 401(k) when you leave employment or if you are allowed to take it with you, you will have to annuitize the entire pot of money when you "retire."

That's never going to happen.

 

[pb4uski]

Looks to me the beneficiary rules were designed to accomplish this. Otherwise, why would they exist for non-spouse beneficiaries? It does not seem like someone "got clever after the fact." ...

I agree that they needed to have a rule for non-spouse beneficiaries.... after all, someone would need to inherit the IRA if there were no spouse... I contend that when they designed that rule that they had an owner's (or spouses) children or nieces or nephews... the next generation... in mind. I don't believe that they had beneficiaries who were 60 to 70 years younger than the owners like grandchildren or great-grandchildren in mind.

If a 20 year old contributed to an 401k or IRA, had kids at 30 and grandkids at 60 and died at 70 and made the 10 yo grandchild a beneficiary and the grandchild took small distributions until they were 70 then that would be 110 years of deferral! 50 years for the owner and 60 years for the grandchild/beneficiary.

If you believe that the beneficiary rules were designed to accomplish this then I think that you are deluding yourself.

 

[Another Reader]

I would agree that they needed to have a rule for non-spouse beneficiaries.... I contend that when they designed that rule that they had an owner's (or spouses) children or neices or nephews in mind... after all, someone would need to inherit the IRA if there were no spouse... but I don't believe that they had beneficiaries who were 60 to 70 years younger than the owners like grandchildren or great-grandchildren in mind.

If a 20 year old contributed to an 401k or IRA, kids at 30 and grandkids at 60 and died at 70 and made the 10 yo grandchild a beneficiary and the grandchild didn't start RMDs until 70 then that would be 110 years of deferral! 50 years for the owner and 60 years for the grandchild/beneficiary.

If you believe that the beneficiary rules were designed to accomplish this then I think that you are deluding yourself.

Hard to say what the intent was or how prescient the drafters of this provision were.

It's important to remember the inheritance is a one time deal. Whoever inherits the inherited IRA has to pay taxes on it in that year.