SECURE Act - your thoughts

[Alexi]

While the gov't can make any rules they want, Roth money already had taxes paid on it, just like a regular savings account or regular brokerage account, or a paycheck.
So unless the gov't wants to tax TWICE, what rule would they make ??

Taxing increase/gains/interest/dividends ??

Never underestimate the ability of government to spoil the party.

 

[CRLLS]

While the gov't can make any rules they want, Roth money already had taxes paid on it, just like a regular savings account or regular brokerage account, or a paycheck.
So unless the gov't wants to tax TWICE, what rule would they make ??

I don't want to give them any ideas, but they could tax just the gains (above the amount contributed) like they do on some other distributions and accounts. Then it would not technically be taxed twice. But it would pretty much eliminate any reason for the Roth. IMO.

 

[statsman]

So unless the gov't wants to tax TWICE, what rule would they make ??

Maybe something akin to the estate tax, which in many ways is double taxation. Or modify and lower the estate tax threshold to include the Roth amount(s). As some have already stated, never underestimate the government in the future to believe it is *their* money.

 

[meierlde]

I think you are both right. I'm glad that they closed the stretch loophole that allowed the wealthy to pass tax-deferred IRAs to their grandchildren or great-grandchildren and was an abuse from a public policy perspective. At the same time, this arbitrary 10 years is onerous in some cases... not so for the person who lives an normal life expectancy (~82 if we believe the SS crossover point) but crazy for someone who dies prematurely (say at 60). I would have like to seen a more well thought out alternative.

The goal was to make the Secure act tax neutral, so the other changes had to have something to pay for them. If I had been in charge it would have been that you must withdraw from an inherited 401k/IRA at the original owners rmd amount, ie, the account would have the same RMDs no matter if the original person or the person who inherited the account.

 

[audreyh1]

So what would you recommend for your heirs? or someone like them?


If your TIRA is large an your heir's had somewhat large TIRA's and other assets


I'd assume you answer would vary based on timing. When do your heirs start their own RMD compared to inheritance timing. Or if they even have a clue if it is coming.


what would you recommend?

Our heirs have small TIRAs. If our heirs were already wealthy or had large TIRAs we probably would use a different approach. Our heirs are younger than us, other than that I can't predict when either of us will die so I don't know if our heirs would be subject to RMDs when they inherit or not.

 

[ncbill]

The only real trouble I see with this new law is that it'll distort the inheriting kids tax situation for a number of years by pushing them into a higher bracket for (possibly) a decade.

And in many circumstances this will be an event that comes as a surprise - the death of a parent isn't always predictable.

Inheriting taxable assets (below fairly high thresholds) isn't a taxable event for most people, but this will be. So I expect CPAs (or other advisors) will be making money from the heirs of people in this forum.

Maybe not until the end of that decade...there are no required annual RMDs under the new rules...the inheritor can just wait to take it all out in year 10.

 

[pb4uski]

If the person inheriting isn't currently saving for retirement, they can step up their pre-tax retirement savings and the deductions will offset, or at least help offset the income from the inherited IRA.

 

[bingybear]

so many what if's


your example could be minimized if the person only had individual IRA's available.




you could also be early in your RMDs (with large TIRA), taken your SS late, have your taxable accounts set for generating income... and then inherit a large TIRA.


And this does not have to be a multi-generational TIRA, could be parent to child

 

[frayne]

72 is the new 70.5 and not all bad since I'm only 68.5.

 

[audreyh1]

So two more years for DH who has an early birthday, and one more year for me. Sounds good to me! We’ll each already be drawing SS and paying taxes on 85% of it.

 

[JoeWras]

Banks are pretty strict about you producing a death certificate for just about anything. You typically can't just go in and say "grandpa died." They'll be looking for the death certificate.

Edit: someone may have deleted a question, that's fine. I won't smoke them out.

 

[ncbill]

Banks are pretty strict about you producing a death certificate for just about anything. You typically can't just go in and say "grandpa died." They'll be looking for the death certificate.

Edit: someone may have deleted a question, that's fine. I won't smoke them out.

Yep, sorry, thought I had a duplicate post & ended up deleting them all.

My point was under the new rules there's no annual required distribution, so an unscrupulous beneficiary could do the paperwork to set up the inherited IRA with grandpa's original brokerage, then move the inherited IRA in year 9 to a new custodian...lather, rinse, repeat...possibly for decades, making it a "super-stretch" IRA.

 

[JoeWras]

Yep, sorry, thought I had a duplicate post & ended up deleting them all.

My point was under the new rules there's no annual required distribution, so an unscrupulous beneficiary could do the paperwork to set up the inherited IRA with grandpa's original brokerage, then move the inherited IRA in year 9 to a new custodian...lather, rinse, repeat...possibly for decades, making it a "super-stretch" IRA.

With all the regulation that banks have to deal with, I can't believe there won't be some stuff in the IRA files to prevent this. It may not be directly in the law, but the regulators will fill in the blanks.

 

[bingybear]

Yep, sorry, thought I had a duplicate post & ended up deleting them all.

My point was under the new rules there's no annual required distribution, so an unscrupulous beneficiary could do the paperwork to set up the inherited IRA with grandpa's original brokerage, then move the inherited IRA in year 9 to a new custodian...lather, rinse, repeat...possibly for decades, making it a "super-stretch" IRA.

Changing the custodian doesn't restart the clock.

 

[dtbach]

I'm spending the IRA down now.

Spend now, avoid the rush later -

+1


Don't really think this bill is going to affect me much. Yawn.

 

[statsman]

Don't really think this bill is going to affect me much. Yawn.

Yeah, I don't think this is going to change our retirement plan much. We are already gifting our only child money that can be of benefit now. So, if heaven forbid my DW and I passed away well before we have drained our IRAs, then the taxes will be paid and a sizeable sum would still remain.

As someone else mentioned, if our only child is working at that time and isn't maxing out the retirement contributions, they could do so for 10 years and offset some of the tax hit.

 

[steelyman]

The key thing for me was whether existing inherited IRAs would continue under the schedule in place (whether they’d be “grandfathered”). It seems they will be as the new rules only apply to IRAs where the original owner dies on or after Jan 1, 2020.

So no change for me as far as my one inherited IRA is concerned. The RMDs should continue through 2041. No idea if steelyman will last that long, but that’s a different concern.

 

[ExFlyBoy5]

I saw a Kiplinger article today with "5 Things to Do RIGHT NOW!" from the SECURE changes. They all required you to contact a FA to get it done "right."

 

[gwraigty]

Yep, sorry, thought I had a duplicate post & ended up deleting them all.

My point was under the new rules there's no annual required distribution, so an unscrupulous beneficiary could do the paperwork to set up the inherited IRA with grandpa's original brokerage, then move the inherited IRA in year 9 to a new custodian...lather, rinse, repeat...possibly for decades, making it a "super-stretch" IRA.

Impossible. You haven't inherited a retirement account, I'm guessing. I have.

Changing the custodian doesn't restart the clock.

+1

 

[bingybear]

I'll get hit.

 

[Sunset]

I'll get hit.

Not if everyone dies quick

 

[Winemaker]

https://www.kitces.com/blog/secure-...ail&utm_term=0_4c81298299-c478759f6d-57042517


This article from Kitces states the facts and circumstances of new law.

 

[target2019]

All spending is good. It's the season of giving, right? Or is it the season of forgiving?

We'll just have to sit and enjoy the RMD being pushed back two years. And the year after we'll pay higher Fed Tax rates.

All of this triggers necessary programming updates for the various planning tools. A mixed blessing, of sorts.

No need to wait until age 72 to take money out of a traditional IRA.

I've been taking money out of mine for many years to take advantage of a lower tax rate.

Yes, that's all good. One can make IRA withdrawals after age 59.5 without penalty.

In our situation, next year we'll be in a lower tax bracket, and will start conversion to Roth.

 

[FIREchief]

My point was under the new rules there's no annual required distribution, so an unscrupulous beneficiary could do the paperwork to set up the inherited IRA with grandpa's original brokerage, then move the inherited IRA in year 9 to a new custodian...lather, rinse, repeat...possibly for decades, making it a "super-stretch" IRA.

That's a great idea!! So what if the IRS catches on and imposes that 50% penalty (annually) for RMDs that aren't taken when due. I'm sure they would forgive and forget, since there's no reason to suspect this would be anything other than a simple misunderstanding.

 

[timo2]

IMO The rule about the 10 year distribution on non-spousal IRA's is a clumsy and backhanded inheritance tax. Congress must have thought that people were using IRAs improperly, which sort of baffles me.