RMD going to 72?

[steelyman]

As an example, I'm 63 and will be making tax-deferred withdrawals to the top of the 12% tax bracket from now until I claim SS at 70 and pay 11-12% of the amount withdrawn in tax. Once SS starts some of my RMDs will be in the 12% bracket but most will be in the 22% bracket.

That sounds totally reasonable. My goal is to fly under the 24% bracket, I’m pretty much lodged in 22% owing to several income sources (not complaining, to be clear).

 

[googily]

That sounds totally reasonable. My goal is to fly under the 24% bracket, I’m pretty much lodged in 22% owing to several income sources (not complaining, to be clear).

Ditto, and in fact I am converting to the top of 24% while still working. A pretty nutso spreadsheet I've built indicates that doing this now will go a long way toward keeping me in the 28% bracket later on, or whatever it may be. But I doubt I'll see 22-24% again.

 

[wolf]

Haven't looked here at posts for a few days, so getting caught up a bit here.

The impact of elimination of stretch provisions (or limiting them to 5 or 10 years) will have an enormous impact on my estate planning.

With the current law, with an assumption of a 5% return and an assumption of my death at 90, my child would inherit over $2M. DC's starting RMD would be about $61K, increasing each year (but offset by continued growth). Assuming DC has a middle income lifestyle (let's say DC makes $60K adjusted for inflation), that $61k extra would be at the 22% federal marginal rate.

Under the new (to be passed law), DC would have to cash out the beneficiary IRA in 10 years (house) or even worse 5 years (senate). Assuming the house plan, that would be over $200K extra income per year, which would push DC to the 35% marginal federal tax rate.

I'm estimating this change will cost my heirs over $300K in additional taxes, which while I will be dead I still consider NOT GOOD.

In a similar situation. Taking RMD's now. Wife starts RMD next year. 2 young children. Early 20's. IRA's over 1 million. 5/10 year rule a disaster.

Should be a "grandfather rule". Prior IRA exempt from new laws.

Will have to look at, converting some IRA $ to Roth. Only problem, currently in 22% fed. tax rate. Not sure what California's tax rate is.

Darn, Congress, always overspending, so now that are passing a law, to collect taxes earlier. Getting tired of them changing the rules in the middle of the game!

 

[pb4uski]

I agree that 5/10 years for non-spousal inherited IRAs is onerous.... I would favor basing RMDs for non-spousal beneficiaries on the difference between 100 and the age of the IRA owner at their death. So if you inherit an IRA from a 90 year old it would be 10 years, but if you inherit an IRA from a 75 year old it would be 25 years.... etc.

The rationale is that the intent is that income deferred by the owner eventually be withdrawn and taxed... so look to the age of the owner to be consistent with that principle.

 

[redduck]

I'm retired and have been doing this RMD thing for a few years. Will this new regulation have any financial impact on me?

 

[pb4uski]

^^^ No. Biggest impact is to non-spousal inheritances of IRAs... accelerating distributions.

 

[FIREchief]

I guess my point is that if you have an opportunity to withdraw tax-deferred money at a low tax cost then do it... you don't have to spend it... you can reinvest part or all of it in a taxable account in the same investments that it was in when it was in your tax-deferred account... but the taxes are already paid and it would be eligible for a stepped up basis, resulting in more tax savings for your heirs.

Why not just Roth convert it instead? Same tax "cost," same benefit as stepped up basis and (apparently) ability to avoid any taxes on earnings for an additional ten years for heirs.

 

[pb4uski]

Why not just Roth convert it instead? Same tax "cost," same benefit as stepped up basis and (apparently) ability to avoid any taxes on earnings for an additional ten years for heirs.

You could Roth convert instead... six of one or 1/2 dozen of another... in both cases the money if out of tax-deferred at a low tax cost.

Roth conversions don't work well for me because virtually all my taxable investment lots have very significant capital gains so to live off of taxable means that I realize gains that impede my ability to reduce tax-deferred at a low tax cost... so for me it is better to just live off of tax-deferred and leave taxable alone... we will likely spend less than the top of the 12% tax bracket so there will likely be a little room for Roth conversions.

 

[RunningBum]

Why not just Roth convert it instead? Same tax "cost," same benefit as stepped up basis and (apparently) ability to avoid any taxes on earnings for an additional ten years for heirs.

I agree. I thought this part of the thread was about someone pulling more out of their tIRA than they needed to spend, and either before RMDs or over the RMD requirement.

I would much rather have money in a Roth than a taxable account. In addition to firechief's points for advantages to heirs, if for some reason I do have to tap the funds, I don't have to pay tax on the growth in a Roth.

 

[Helena]

?

The Senate is back in session this week.
Has anyone heard what they will do now ?

?

 

[wolf]

Why not just Roth convert it instead? Same tax "cost," same benefit as stepped up basis and (apparently) ability to avoid any taxes on earnings for an additional ten years for heirs.

In my case. Not the same. Already doing RMD. (in 22% bracket). Wife starts RMD next year. Not sure what tax bracket we will be in then. Then if we take out additional $ to put into Roth, will be paying substantial taxes.

Even if we were able to put $ into Roth. We have very young beneficiaries, who
can not handle a large sum of $. (as others have mentioned).

Sorry for the vent: Congress cannot run within a budget. So they are changing the IRA "rules" in the middle of the game. Should be illegal.

To be fair. They should "grandfather in IRA's. Older folks exempted. Younger folks OK. At least they have the option of determining how much
they want to save in an IRA, 401K,403B, or Roth. Or neither, if one cannot trust Congress to keep changing the rules.

 

[Tekward]

Thanks Steelyman. That wasn't on my radar. Back to the spreadsheets!


Paying it forward: The standard Part B premium amount in 2019 is $135.50. Most people will pay the standard Part B premium amount. If your modified adjusted gross income as reported on your IRS tax return from 2 years ago is above a certain amount, you'll pay the standard premium amount and an Income Related Monthly Adjustment Amount (IRMAA). IRMAA is an extra charge added to your premium.
https://www.medicare.gov/your-medicare-costs/part-b-costs

 

[FIREchief]

?

The Senate is back in session this week.
Has anyone heard what they will do now ?

?

+1 I've read that they are trying to "fast track" it in the Senate (whatever that really means). It would be fantastic if this thing just died on the vine. Of course, the death of the stretch has been on the radar for at least four years in Washington, so it will likely keep coming back if not passed this year.

Has anybody seen any interpretations of how the ten year rule would work? I'm curious if it will be:

a) entire balance must be removed by end of year ten (without further restrictions, similar to the current five year rule for non-individuals) or

b) a ten year RMD schedule will be established that will, for example, require 10% to be removed by the end of year one, 11.1% of remaining balance year two, 12.5% of remaining balance year three, etc.

If "a", then a 100% Roth legacy will still have ten years to grow tax free, which may be a pretty good deal. If "b," then there may be little advantage to using ten years vs. just leaving all in until the end of year five per (what I will assume to be) the continuing five year option that doesn't require an "individual" to be the beneficiary. In this case, it would greatly simplify estate planning as trusts could be simpler and more flexible wrt ages of the potential beneficiaries (or possible successor charitable beneficiaries).

 

[FIREchief]

In my case. Not the same. Already doing RMD. (in 22% bracket). Wife starts RMD next year. Not sure what tax bracket we will be in then. Then if we take out additional $ to put into Roth, will be paying substantial taxes.

I understand, but the context of my response was a suggested scenario whereby somebody would choose to make additional, discretionary withdrawals (i.e. over and above RMDs) from a tIRA to fund after-tax investments.

Even if we were able to put $ into Roth. We have very young beneficiaries, who
can not handle a large sum of $. (as others have mentioned).

I don't understand what you are saying here. Roth assets could be left in a qualified trust for the benefit of young beneficiaries just as easily as after-tax assets can be left in trust.

Sorry for the vent: Congress cannot run within a budget. So they are changing the IRA "rules" in the middle of the game. Should be illegal.

They do run within a budget. It's just that the budget is not revenue neutral (i.e. balanced). I certainly agree that they seem to be changing the rules in the middle of the game (to the sole detriment of those who have "played by the rules" wrt LBYMs and saving for retirement).

To be fair. They should "grandfather in IRA's. Older folks exempted. Younger folks OK. At least they have the option of determining how much
they want to save in an IRA, 401K,403B, or Roth. Or neither, if one cannot trust Congress to keep changing the rules.

At the expense of complexity, I feel that all existing IRA assets should be grandfathered and only future IRA contributions should be subject to more restrictive inherited RMD schedules. If not that, then just cancel all IRA and 401k options and encourage after-tax savings by further reductions of capital gains tax rates. Of course, then they would just set their sites on the stepped-up basis.

 

[Winemaker]

They do run within a budget. It's just that the budget is not revenue neutral (i.e. balanced). I certainly agree that they seem to be changing the rules in the middle of the game (to the sole detriment of those who have "played by the rules" wrt LBYMs and saving for retirement).

September 2018 was the first time in years, a budget was passed. It has been run on continuing resolutions because they can't get their act straight.It has been one of the reasons for government shutdowns.

 

[googily]

?



The Senate is back in session this week.

Has anyone heard what they will do now ?



?

Six senators have placed private "holds" on the bill. So Grassley, who really really wants it passed, says he will be going to each of them to hear their concerns.

 

[Helena]

Six senators have placed private "holds" on the bill. So Grassley, who really really wants it passed, says he will be going to each of them to hear their concerns.

Thanks!

I just found out this evening that one of them is MY senator.

I have already emailed him letting him know if he messes up the
RMD age to 72 in 2020 benefit I will NEVER vote for him again !!
[and I suspect that will be the least of his worries!]

.

 

[Helena]

Six senators have placed private "holds" on the bill. So Grassley, who really really wants it passed, says he will be going to each of them to hear their concerns.

Someone enlighten me... how can six senators out of 100 hold a bill hostage ??

?

 

[FIREchief]

September 2018 was the first time in years, a budget was passed. It has been run on continuing resolutions because they can't get their act straight.It has been one of the reasons for government shutdowns.

Isn't a continuing resolution just a different kind of budget (i.e. an extension of current spending authorization)?

 

[FIREchief]

Six senators have placed private "holds" on the bill. So Grassley, who really really wants it passed, says he will be going to each of them to hear their concerns.

I would like to understand this better. Can you provide a link to the source?

 

[googily]

I would like to understand this better. Can you provide a link to the source?

Info on the bill:
https://www.rollcall.com/news/retirement-bill-remains-stalled-amid-republican-holds-senate

Senate holds:
https://en.m.wikipedia.org/wiki/Senate_hold

 

[FIREchief]

I have a question for those who have reviewed the text of the SECURE bill. This is in the context of using a trust to protect the inherited IRA assets. It appears that under the ten year rule, age of all potential beneficiaries would not drive an RMD schedule. This suggests that a person could name a child as primary beneficiary but allow an older sibling or even parent to be named as successor beneficiary without "messing up" the child's (now reduced) stretch. If this is correct, it could be a small silver lining for some situations. Does anybody else read it this way?

(under current law, the age of the oldest potential beneficiary determines the RMD schedule for all payouts)

 

[FIREchief]

Info on the bill:
https://www.rollcall.com/news/retirement-bill-remains-stalled-amid-republican-holds-senate

Senate holds:
https://en.m.wikipedia.org/wiki/Senate_hold

Thanks googily!!

 

[pb4uski]

Someone enlighten me... how can six senators out of 100 hold a bill hostage ??

?

Info on the bill:
https://www.rollcall.com/news/retirement-bill-remains-stalled-amid-republican-holds-senate

Senate holds:
https://en.m.wikipedia.org/wiki/Senate_hold

The original intent of these sections was to protect a senator's right to be consulted on legislation that affected the senator's state or in which a senator had a great interest. The ability to place a hold would allow that senator an opportunity to study the legislation and to reflect on its implications before moving forward with further debate and voting.[2]

According to Congressional Research Service research, holds were not common until the 1970s, when they became more common due to a less collegial atmosphere and an increasing use of unanimous consent to move business to the floor.[3]

It seems to me that the original intent.... to give a senator whose state would be impacted or who had a great interest in certain legislation time to study the bill... was reasonable. Now it is being used to for poltical purposes. So continue to allow holds, but only for 10 days... if a senator (and their staff) can't study the bill and move forward with further debate and voting in 10 days then they are out of luck.

 

[Winemaker]

Isn't a continuing resolution just a different kind of budget (i.e. an extension of current spending authorization)?

Yes and no.

As originally designed, the executive branch proposes a annual budget using department recommendations from Cabinet officials; Congress looks it over in appropriation committees and decides/ alters/ negotiates the budget and creates one annual budget. That budget is voted on by Congress and sent to the president to sign and become law.


https://www.usa.gov/budget



Under the dysfunction and politics of the past 20 years or so, certain parts of the budget are not able to come to an agreement to make an annual budget. So in order to continue to fund the guvment so these agreements are in place to create an annual budget, a continuing resolution is passed until issues are resolved. Hence, the bickering and infighting every couple of months of a guvment shutdown which may include a spending/political issue (such as a wall) or a political one (such as the DACA issue). The annual budget negotiations are also supposed to include how to fund the spending, such as taxes or borrowing, for the year. But that doesn't always happen, spending bills are passed, but not the debt ceiling, hence setting up more bickering and infighting, and guvment shutdowns. The threat of guvment shutdowns shows that Congress and the President aren't doing their jobs on a timely fashion and constitutionally.