A proposal for a flat tax on retirement account withdrawals

[USGrant1962]

FWIW, this is not a "proposed tax" by anyone with any authority to propose a tax. It is a SGOTI musing on the internet.

I hereby "propose" that for anyone born in 1962 all IRA withdrawals are tax free in 2026. This will immediately inject $137.B into the economy thereby increasing employment, raising wages, increasing sales (and hence stock prices) and freeing up capital for cheaper housing.

Gee, I should get a website to flog this.... www.1962ZeroTax.com. Oh look, it is available on GoDaddy for $4.99!

https://www.godaddy.com/domainsearch/find?domainToCheck=1962ZeroTax.com&tmskey=nc_com_offer

 

[Koolau]

FWIW, this is not a "proposed tax" by anyone with any authority to propose a tax. It is a SGOTI musing on the internet.

I hereby "propose" that for anyone born in 1962 all IRA withdrawals are tax free in 2026. This will immediately inject $137.B into the economy thereby increasing employment, raising wages, increasing sales (and hence stock prices) and freeing up capital for cheaper housing.

Gee, I should get a website to flog this.... www.1962ZeroTax.com. Oh look, it is available on GoDaddy for $4.99!

https://www.godaddy.com/domainsearch/find?domainToCheck=1962ZeroTax.com&tmskey=nc_com_offer

Heh, heh, let me guess, USGrant 1962...

 

[SnowballCamper]

This is among the stupidest ideas I've seen on the internet.

 

[TripleLindy]

It is a SGOTI musing on the internet.

And there it is. Any knucklehead with an iPhone can make a very professional looking video, claim unverifiable credentials/experience, and provide all kinds of misinformation. Granted, this is just the floating of an idea, so it doesn’t necessarily fit that description, but it’s the world we now live in where so many people ignore (or are unaware of) editorial/journalistic integrity and instead trust the twit as a news source.

But if the 12% flat tax gets legs, it would probably be the catalyst for Roth conversions for me!

 

[NomDeER]

If the powers that be really wanted people to start using their traditional retirements funds earlier, they would have lowered the RMD age instead of raising it. There is no need to give a tax break incentive to people who already are in a higher tax bracket.

 

[TheWizard]

If the powers that be really wanted people to start using their traditional retirements funds earlier, they would have lowered the RMD age instead of raising it. There is no need to give a tax break incentive to people who already are in a higher tax bracket.

I think you mean "start PAYING TAXES on their..."

Raising the RMD age allows smart folks to Roth convert even more tax-deferred money while keeping their AGI under control...

 

[OldShooter]

This is among the stupidest ideas I've seen on the internet.

I think the OP lucked into some really good drugs. Maybe he would share?

 

[Time2]

We live within the 12% tax bracket, in 2025 that was about $142,650. Maybe a little more with only 85% of SS taxed. But, after all the deductions, that is only 7.7% tax on the gross income. I'm not for a 12% flat tax.
The author says,
"Let’s reward the savers (especially Baby Boomers) by letting them actually use their retirement money."
I don't use the $142,650 now, much of that goes into a Roth.

 

[NomDeER]

I think you mean "start PAYING TAXES on their..."

Raising the RMD age allows smart folks to Roth convert even more tax-deferred money while keeping their AGI under control...

The original post talks about wanting people to start using their traditional retirement money earlier. (We can debate whether that is a real concern, but that is an issue raised in the original post.) IMO, raising the RMD age does not encourage people to actually spend and use the money in their accounts; if anything, it's the opposite because they want it to continue to grow tax free or they want to convert it to Roth.

 

[Flieger]

I'm already paying less than 12% Effective Tax rate, so no thank you to a required 12% for withdrawals.

Flieger

 

[TheWizard]

I'm already paying less than 12% Effective Tax rate, so no thank you to a required 12% for withdrawals.

Flieger

It's your MARGINAL tax rate that matters for certain things...

 

[Flieger]

It's your MARGINAL tax rate that matters for certain things...

Yeah, I get it. My effective was 4.6%, so I still think I would be negatively impacted. Not going to go back and do the math though, as this will never happen.

Flieger

 

[old medic]

We live within the 12% tax bracket, in 2025 that was about $142,650. Maybe a little more with only 85% of SS taxed. But, after all the deductions, that is only 7.7% tax on the gross income. I'm not for a 12% flat tax. I don't use the $142,650 now, much of that goes into a Roth.

This is our song the next several years.

 

[sengsational]

Parenthetically, money that is in savings or investments is not useless. It provides assets which are used to provide loans or capital to banks and businesses.

I didn't click into the guy's page (don't want to encourage him), but yeah, this.

"huge sucking sound"

Quoting one of my heros

FWIW, this is not a "proposed tax" by anyone with any authority to propose a tax. It is a SGOTI musing on the internet.

Unfortunately it's the way of the world. Maybe before showing any page we are tempted to explore, our personal AI agent will make a summary for us "Just SGOTI telling a fable that people want to hear to get clicks but no basis in reality"

 

[ShokWaveRider]

A flat tax is a great idea (for all income, not just SS) but will never come to fruition, it is too easy and would put a lot of people out of work.

 

[Andre1969]

Of course. Usually ten years. But in the end, the heirs could net a much bigger amount after taxes. As noted "even more millions"

Yeah, a lot can happen in 10 years. Just to use a personal example, when my uncle died in 2023, he left everything to me, as he had no kids of his own. At the time he had a rollover IRA and a 401k. On the date of his death, in October 2023, combined they were worth $193,184.

I combined them into an inherited IRA, and it's subject to the 10 year rule, where there actually are no required RMDs. It just has to be completely withdrawn at the end of the 10th year, 12/31/2033. The financial advisor at Fidelity said that if I was planning on retiring in the near future, it might be a good idea to hold off on withdrawals until after retirement, so I'll be in a lower tax bracket. So, I held off, and took nothing out for 2024. At the end of the year, it had grown to $258,351.

I was planning to retire in 2025, so I decided to start taking withdrawals. My initial plan was to pull out 1/9th of the value in 2025, 1/8th the following year, then 1/7th, and so on. I decided to pull out $2500/mo, or $30K, for 2025. While slightly more than 1/9th, I had initially set up the automatic monthly withdrawals when the account value was higher; it had briefly gone to around $270K.

As of this morning, it's worth $269,112, despite having withdrawn $35,000. Initially I was going to ramp up the 2026 distributions, reflecting 1/8th of the value at the end of 2025. However, I'm going to be selling a house soon, and I figure I'll be paying enough taxes from that. So I'm holding off at $2500/mo for now. Then when I get the proceeds from the house, I'm planning on just suspending the withdrawals for the rest of the year.

I know I'm not going to see these types of gains every hear, but 12/31/2033 is still a good ways off. So if I was to simply just let it sit, and not take out any distributions, it could grow to a wonderfully obscene amount over the course of the next 94 months.

 

[jollystomper]

I think the OP lucked into some really good drugs. Maybe he would share?

As the OP, I am curious as to what you think what drugs I would be on , for simply posting a proposed idea from someone who is a best selling author (according to the New York Times) in the personal finance realm, and linking to the research he did on why he is proposing the idea, for anyone to evaluate and agree or disagree. Please show me what I specially posted in my original post that led you to this thought process.

It seems that some folks find it impossible to discuss policies without making it personal, but I guess that is the world we live in today .

 

[RetireBy90]

Well, this idea shows why it is a good idea to spread your bets. Some TIRA, Some Roth, and some after tax.
I converted my TIRAs and paid taxes. My choice. However, under this plan I would have paid more tax than necessary. Dang, foiled again OTOH I'm happy to have the tax hit behind us. Current income from SS, Pensions and rental mandate a sizeable contribution already.

 

[TripleLindy]

As the OP, I am curious as to what you think what drugs I would be on , for simply posting a proposed idea from someone who is a best selling author (according to the New York Times) in the personal finance realm, and linking to the research he did on why he is proposing the idea, for anyone to evaluate and agree or disagree. Please show me what I specially posted in my original post that led you to this thought process.

It seems that some folks find it impossible to discuss policies without making it personal, but I guess that is the world we live in today .

Right on, Jolly! I had the same thought when I read those posts. It’s not like you were proposing the idea.

 

[CaptTom]

...Maybe before showing any page we are tempted to explore, our personal AI agent will make a summary for us "Just SGOTI telling a fable that people want to hear to get clicks but no basis in reality"

You pretty much nailed it.

I asked AI about that site. Be sure to scroll all the way down to the "verdict.":
[mod edit]

Please don’t copy and paste AI content as per our guidelines.

Forum Posting Standards Update: Use of AI in member posts
[mod-edit]

 

[sengsational]

Right on, Jolly! I had the same thought when I read those posts. It’s not like you were proposing the idea.

Also, not just SGOTI. I pulled up his books on Amazon and one example is in the top 50 retirement planning books.

That being said, I can't take the guy seriously with titles something like "start late, retire rich" and other fictions like that in other titles. He seems to be telling people what they want to hear, and less about the real world. But his books aren't classified under "fiction"

 

[TripleLindy]

Also, not just SGOTI. I pulled up his books on Amazon and one example is in the top 50 retirement planning books.

That being said, I can't take the guy seriously with titles something like "start late, retire rich" and other fictions like that in other titles. He seems to be telling people what they want to hear, and less about the real world. But his books aren't classified under "fiction"

Agreed. It’s getting harder and harder to sift through the noise and identify credible sources for anything. I know someone who I worked with for years who has written several business/self help books, exaggerating her experience, knowledge and even lying about elements of her personal life. You’d think the publisher would verify those things, but I guess they’re not easily verified. It’s just too easy to produce material these days.

 

[RunningBum]

Yeah, I get it. My effective was 4.6%, so I still think I would be negatively impacted. Not going to go back and do the math though, as this will never happen.

Flieger

You are almost certainly right. If your first dollars on your withdrawal are taxed at less than 12%, this is bad for you. It would definitely be bad for me as right now I'm converting at 0% and 10%. Wiz is kind of right that it's the marginal rate, but on your first dollars, not last or additional dollars withdrawn.

Doesn't matter, this is not a real proposal being considered.

 

[target2019]

Some readers believe anything in print or online, and are eager to share. It's a common occurrence, and as a thread picks up steam we have critique. Sounds good to me.

Amazon is not your friend, that's for sure.

 

[pb4uski]

...The author says,
"Let’s reward the savers (especially Baby Boomers) by letting them actually use their retirement money."...

Savers are already being rewarded in that in many/most cases they are paying a lower tax rate on tax-deferred withdrawals than they paid when they deferred that income. For those who are paying a higher tax rate on withdrawals than when they deferred that income they have been much more financially successful than when they deferred that income so they should count their blessings.