Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
This makes significant changes to age rules for IRAs as they pertain to RMDs and contributions. Catch provided an excellent set of links about the legislation when it passed the House last June.
While it raises the starting age for RMDs to 72 (for those not yet 70½ at the end of this year), it does not appear to change the age requirement for qualified charitable contributions (QCDs). It seems these will still be permitted starting at age 70½. (Inferred in part from the omission of any mention of QCDs in most SECURE Act coverage.)
Thank you, @msf ; for the update info regarding this legislation.
From the article: "Congress just agreed to a bipartisan appropriations bill that will help avert another government shutdown. However, attached to the spending bill is a piece of legislation called the Setting Every Community Up for Retirement Enhancement Act (SECURE Act), which passed the House with a 417-3 vote earlier this summer.
>>>I remain disappointed over many years when these types of actions continue; but compromise to pass an agreement/legislation has been in place since the first two humans were able to sign an agreement with a hand print and three dots into a piece of soft mud. One would have to give a full time life of following these legislative bills that become compromised to "win" a vote here and there to fully understand the impacts. The "Bridge to Nowhere" is a prime example of "pork barrel", which is a bit different from the subject here, but remains in the same pig pen (IMHO); as the bridge monies (+$300 million) was part of a transportation package.
Ironic and conflicting legislative actions will continue into infinity. Michigan began the state lottery in 1972. Part of the push to pass this legislation was to set aside monies from lottery sales to go directly to K-12 education; which indeed did and still does exist. The legislation also created many well paid government positions and state revenue. One still sees many local tv ads to "play" the lottery; and in some cases, within a short time frame an ad for a state funded "gambling addition" hotline web site and phone number. Michigan recently passed online sports betting legislation that also includes special funding for a "gambling addition" hotline.
As Sonny and Cher sang many, many, many years ago, "The Beat Goes On". And yes, I did not include a video here.
@catch 22; Seems to me that you may need another cup of JOE this morning. A summary of what the link is talking about, changes to RMD's. I clicked on link & the length of it turned me off. At 71 I'm guessing no changes for me.
@Derf - if you're referring to the IRS rules I believe the Cliff Note version is that non-spousal beneficiaries will have to take out more because the time frame has been shortened to 10 years. In other words, my children who are the only beneficiaries of my IRA's (95% Roth, 5% traditional) now have 10 years to withdraw all available funds where before they would have been able to stretch out RMD's over the expected life span of my eldest child (42) or roughly 50 years.
Bottom line the IRS wants their tax money quicker along with insurance companies, retirement plan advisors(?) etc who might like to pump annuities etc. to help you defer those taxes coming due in 10 years.
Rest assured the money grab will never end.
Edit to add: It is my intention to drain my traditional IRA and/or convert it to my Roth to eliminate one bogeyman from the equation. I will do this because my tax burden on this account will be lower than any of my kids. As of this date there still are no taxes due on my Roth assets but who knows down the line.
Hi @Derf Actually, just doing cup #2 of the coffee thing. Was outside for a bit, but too damn cold today. So, I'm a bit in a mood from the cold. Will you please ask Canada to stop with the cold air; or at least don't let your state past it across Lake Michigan. We, in Michigan; need a wall for such weather things. Perhaps I'll make a request through my D.C. reps.
This is the best short summary of the legislation from May, 2019.
Likely for your household, is that the biggest change will be for those who pass along IRA monies to non-spousal beneficiaries...........the elimination of the stretch provision.
Yup, that covers the ground of interest to me for this super plan..............F*%# !!! This was the only recent legislation that prompted me to contact my senators (they would have voted on this separate bill) to express, that aside from decent changes from other portions of the bill; that passage would indeed affect the middle class (not the 1% rich) with their ability to perhaps pass along family money. Who knows, non-spousal beneficiaries may actually use the money to start and operate a business that would employ tax payers. Well, they still can; but will cough up more tax money at a faster rate; which indeed are tax dollars from others (you and I) to subsidize other areas of the legislation. Another most important part of reducing the "stretch" time is the large reduction in time for COMPOUNDING investment returns. Yikes. Okay, I'm fully out of bitch time for now.
Indeed. Taxpayers will continue to do what they can to avoid or defer paying taxes on their income. So they try to use "tax-favored vehicles to build up large bequests". With the exception of Roth's exemption from mandatory distributions, Congress has historically acted to curb such use.
As far back as 1987, the CBO wrote of earlier IRA legislation on RMDs "to discourage [this use] by wealthy individuals".
That same CBO report observed that there is "the principle, first legislated for IRAs, that when taxpayers use qualified plan assets for nonretirement purposes, they should repay the Treasury some portion of the tax advantages that were previously accumulated within those assets."
----------
"that passage would indeed affect the middle class (not the 1% rich) with their ability to perhaps pass along family money."
I suppose it depends on how one defines the middle class. In 2016, nearly half (47.9%) of all families had no retirement accounts of any type. (Fed Reserve, 2016 SCF Chartbook, pdf p. 435).
The median inheritance that year (which would include non-retirement assets as well as retirement accounts) was $69,000. See here, citing same SCF report. Having heirs pay taxes on a tenth of that amount each year for a decade isn't going to impose a significant burden. Even less if there's more than one heir and the amount is split among taxpayers.
The point is that for most taxpayers and their heirs, the dollars involved aren't enough for this change to have substantial impact. One more statistic to mull over: "One study found that one third of people who received an inheritance had negative savings within two years of the event."
--------
In a sense, this change is merely a return to the tax code's roots. When we look back far enough, we find that before ERISA, with its IRAs and qualified plans, employer plans paid out benefits in lump sums. To deal with the resulting tax distortion, the tax code allowed recipients to average their payouts over ten years. That's still part of the tax code, but you have to have been born before 1936 to take advantage of it. Now the spreading out of retirement income over ten years has been resurrected, albeit in a slightly different form.
--------
"they would have been able to stretch out RMD's over the expected life span of my eldest child (42) or roughly 50 years."
Beneficiaries are required to use Table I (Single Life Expectancy), which shows that someone aged 42 would use a life expectancy of 41.7 years. Also, the way the divisor currently works for inherited IRA RMDs is that each year you subtract one. So you might divide the IRA balance by 41.7 the first year, and then 40.7 the next, 39.7 and so on.
IRA beneficiary designations are used by many as a "poor man's estate plan". For the typical family, little will change. If one has enough money for it to matter, it is important to understand the tax code or work with someone who does.
It always was. As illustrated above, even with something as "simple" as an IRA, it's always been difficult to use the rules to optimal effect.
Comments
The Hidden Money Grab In The SECURE Act
The SECURE Act: Is It Good For You Or Bad For You?
The Best Defenses Against The SECURE Act
From the article: "Congress just agreed to a bipartisan appropriations bill that will help avert another government shutdown. However, attached to the spending bill is a piece of legislation called the Setting Every Community Up for Retirement Enhancement Act (SECURE Act), which passed the House with a 417-3 vote earlier this summer.
>>>I remain disappointed over many years when these types of actions continue; but compromise to pass an agreement/legislation has been in place since the first two humans were able to sign an agreement with a hand print and three dots into a piece of soft mud.
One would have to give a full time life of following these legislative bills that become compromised to "win" a vote here and there to fully understand the impacts.
The "Bridge to Nowhere" is a prime example of "pork barrel", which is a bit different from the subject here, but remains in the same pig pen (IMHO); as the bridge monies (+$300 million) was part of a transportation package.
Ironic and conflicting legislative actions will continue into infinity. Michigan began the state lottery in 1972. Part of the push to pass this legislation was to set aside monies from lottery sales to go directly to K-12 education; which indeed did and still does exist.
The legislation also created many well paid government positions and state revenue. One still sees many local tv ads to "play" the lottery; and in some cases, within a short time frame an ad for a state funded "gambling addition" hotline web site and phone number. Michigan recently passed online sports betting legislation that also includes special funding for a "gambling addition" hotline.
As Sonny and Cher sang many, many, many years ago, "The Beat Goes On". And yes, I did not include a video here.
Regards,
Catch
The Secure Act Is About to Pass. Here Are 3 Ways It Will Change How You Save for Retirement.
From the 401K Specialist: (more color provided):
It’s In! SECURE Act Included in 2020 Spending Package
Updated Life Expectancy and Distribution Period Tables Used for Purposes of Determining Minimum Required Distributions
A Proposed Rule by the Internal Revenue Service on 11/08/2019
Thanks, Derf
A summary of what?
Regards,
Catch
A summary of what the link is talking about, changes to RMD's. I clicked on link & the length of it turned me off. At 71 I'm guessing no changes for me.
Have a nice day, Derf
Bottom line the IRS wants their tax money quicker along with insurance companies, retirement plan advisors(?) etc who might like to pump annuities etc. to help you defer those taxes coming due in 10 years.
Rest assured the money grab will never end.
Edit to add: It is my intention to drain my traditional IRA and/or convert it to my Roth to eliminate one bogeyman from the equation. I will do this because my tax burden on this account will be lower than any of my kids. As of this date there still are no taxes due on my Roth assets but who knows down the line.
Actually, just doing cup #2 of the coffee thing. Was outside for a bit, but too damn cold today. So, I'm a bit in a mood from the cold. Will you please ask Canada to stop with the cold air; or at least don't let your state past it across Lake Michigan. We, in Michigan; need a wall for such weather things. Perhaps I'll make a request through my D.C. reps.
This is the best short summary of the legislation from May, 2019.
Likely for your household, is that the biggest change will be for those who pass along IRA monies to non-spousal beneficiaries...........the elimination of the stretch provision.
Stay warm.
Catch
Yup, that covers the ground of interest to me for this super plan..............F*%# !!!
This was the only recent legislation that prompted me to contact my senators (they would have voted on this separate bill) to express, that aside from decent changes from other portions of the bill; that passage would indeed affect the middle class (not the 1% rich) with their ability to perhaps pass along family money. Who knows, non-spousal beneficiaries may actually use the money to start and operate a business that would employ tax payers. Well, they still can; but will cough up more tax money at a faster rate; which indeed are tax dollars from others (you and I) to subsidize other areas of the legislation. Another most important part of reducing the "stretch" time is the large reduction in time for COMPOUNDING investment returns. Yikes.
Okay, I'm fully out of bitch time for now.
Take care,
Catch
Indeed. Taxpayers will continue to do what they can to avoid or defer paying taxes on their income. So they try to use "tax-favored vehicles to build up large bequests". With the exception of Roth's exemption from mandatory distributions, Congress has historically acted to curb such use.
As far back as 1987, the CBO wrote of earlier IRA legislation on RMDs "to discourage [this use] by wealthy individuals".
That same CBO report observed that there is "the principle, first legislated for IRAs, that when taxpayers use qualified plan assets for nonretirement purposes, they should repay the Treasury some portion of the tax advantages that were previously accumulated within those assets."
----------
"that passage would indeed affect the middle class (not the 1% rich) with their ability to perhaps pass along family money."
I suppose it depends on how one defines the middle class. In 2016, nearly half (47.9%) of all families had no retirement accounts of any type. (Fed Reserve, 2016 SCF Chartbook, pdf p. 435).
The median inheritance that year (which would include non-retirement assets as well as retirement accounts) was $69,000. See here, citing same SCF report. Having heirs pay taxes on a tenth of that amount each year for a decade isn't going to impose a significant burden. Even less if there's more than one heir and the amount is split among taxpayers.
The point is that for most taxpayers and their heirs, the dollars involved aren't enough for this change to have substantial impact. One more statistic to mull over: "One study found that one third of people who received an inheritance had negative savings within two years of the event."
--------
In a sense, this change is merely a return to the tax code's roots. When we look back far enough, we find that before ERISA, with its IRAs and qualified plans, employer plans paid out benefits in lump sums. To deal with the resulting tax distortion, the tax code allowed recipients to average their payouts over ten years. That's still part of the tax code, but you have to have been born before 1936 to take advantage of it. Now the spreading out of retirement income over ten years has been resurrected, albeit in a slightly different form.
--------
"they would have been able to stretch out RMD's over the expected life span of my eldest child (42) or roughly 50 years."
Beneficiaries are required to use Table I (Single Life Expectancy), which shows that someone aged 42 would use a life expectancy of 41.7 years. Also, the way the divisor currently works for inherited IRA RMDs is that each year you subtract one. So you might divide the IRA balance by 41.7 the first year, and then 40.7 the next, 39.7 and so on.
Perhaps more importantly, the kids could have stretched the RMDs over each of their lifetimes and would not have been limited by the age of the eldest. At least if they knew what to do, which was to split the IRA within a year of death.
https://www.kiplinger.com/article/retirement/T021-C000-S004-how-heirs-can-maximize-an-inherited-ira.html
IRA beneficiary designations are used by many as a "poor man's estate plan". For the typical family, little will change. If one has enough money for it to matter, it is important to understand the tax code or work with someone who does.
It always was. As illustrated above, even with something as "simple" as an IRA, it's always been difficult to use the rules to optimal effect.