Good News for You And Your IRA: The IRS Thinks You Will Live Longer

[MULTIZ321]

Good News for You And Your IRA: The IRS Thinks You Will Live Longer.


https://www.forbes.com/sites/leonla...irs-thinks-you-will-live-longer/#4849bc39404d.



Richard

 

[pedro47]

Richard, thanks for sharing this information.
This is good news from IRS for a change. This time I hope that the IRS are correct in predicting that retirees will live longer in retirement.

 

[bluehende]

Thanks for posting. I will have to follow this closely as I am running numbers and trying to figure out how to optimize tax strategy for both me and the kids. Moving to 72 gives me 2 more years for managing income before it starts rising significantly.

 

[VacationForever]

Thanks for sharing, Richard. What I don't like about this proposal is that inherited IRA has to be taken out within 10 years. Instead of giving peace of mind to a parent that inherited IRA can last a lifetime for their child/children, they will have to take them within 10 years and pay higher taxes.

 

[rickandcindy23]

The Roth IRA is currently not taxed as income when taking it out. I didn't see anything about that. Does that mean IRA's will all be subject to income tax?

 

[mjm1]

Thanks for sharing, Richard. What I don't like about this proposal is that inherited IRA has to be taken out within 10 years. Instead of giving peace of mind to a parent that inherited IRA can last a lifetime for their child/children, they will have to take them within 10 years and pay higher taxes.

This appears to be the government trying to increase their tax revenues sooner overall than they currently would receive them. They make it sound good for the original owner of the IRA, but certainly not the beneficiary. Given the amount of money that experts say stands to be inherited, that earlier flow of revenue to the government will be substantial. Unfortunately, this isn't a surprise.

Best regards.

Mike

 

[Passepartout]

The Roth IRA is currently not taxed as income when taking it out. I didn't see anything about that. Does that mean IRA's will all be subject to income tax?

Regular IRA's are subject to taxation when you withdraw them. You pay the tax on Roth IRA's before they're deposited, so that's done. Don't get too excited by the proposal- THAT's what it is, a PROPOSAL.

Jim

 

[CalGalTraveler]

@rickandcindy23 No, this only applies to traditional IRAs and I believe QRPs/401ks which were pre-tax deductions for employees.

Another workaround is you can avoid the RMD altogether if you can be employed part-time such that you qualify to participate in a larger company or institution's 401k /403b plan (i.e. It's not your own company - you don't own a majority of the stock in the company). If the plan allows, you can reverse roll-over your traditional IRA and self-employed business retirement plan into the larger company's 401k and avoid the RMD for the time you are employed by the large company.

 

[VacationForever]

@rickandcindy23 No, this only applies to traditional IRAs and I believe QRPs/401ks which were pre-tax deductions for employees.

Another workaround is you can avoid the RMD altogether if you can be employed part-time such that you qualify to participate in a larger company or institution's 401k /403b plan (i.e. It's not your own company - you don't own a majority of the stock in the company). If the plan allows, you can reverse roll-over your traditional IRA and self-employed business retirement plan into the larger company's 401k and avoid the RMD for the time you are employed by the large company.

... at some point when IRA-holder withdraws or in the case of the non-spouse beneficiary withdrawal, they will be hit with an even larger amount of IRA and taxes to withdraw over a 10-year period for the inherited IRA.

 

[bluehende]

With the discussion here does the proposal eliminate the rollover option for inherited 401k?

 

[SmithOp]

@rickandcindy23 No, this only applies to traditional IRAs and I believe QRPs/401ks which were pre-tax deductions for employees.

Another workaround is you can avoid the RMD altogether if you can be employed part-time such that you qualify to participate in a larger company or institution's 401k /403b plan (i.e. It's not your own company - you don't own a majority of the stock in the company). If the plan allows, you can reverse roll-over your traditional IRA and self-employed business retirement plan into the larger company's 401k and avoid the RMD for the time you are employed by the large company.

Thats a dubious workaround, who wants to work and pay taxes on income in order not to pay taxes on RMDs, in your 70s?

I had a tax client like that, worked until he was 84. Then he fell down the steps going to work, broke 4 ribs and his hip, never made it out of the hospital. His widow is taking some nice vacations now wearing a lot of diamonds...


Sent from my iPad using Tapatalk Pro

 

[CalGalTraveler]

... at some point when IRA-holder withdraws or in the case of the non-spouse beneficiary withdrawal, they will be hit with an even larger amount of IRA and taxes to withdraw over a 10-year period.

My understanding is that this 10 year limit is for the heirs who inherit. Not the retiree.

 

[CalGalTraveler]

Thats a dubious workaround, who wants to work and pay taxes on income in order not to pay taxes on RMDs, in your 70s?

I had a tax client like that, worked until he was 84. Then he fell down the steps going to work, broke 4 ribs and his hip, never made it out of the hospital. His widow is taking some nice vacations now wearing a lot of diamonds...


Sent from my iPad using Tapatalk Pro

The people I know are hardly working and still enjoy their profession. One is a doctor who works as a backup for a major health system. He is not obligated to come in when they call. He worked only a handful of days last year but because he is a backup resource and he spreads out the days he works, he is listed as an active employee in their retirement plan. Not a lot of income to pay taxes on.

 

[CalGalTraveler]

It's hard to take pity on heirs that have to pay taxes because they inherited more money. Our goal is to enable us to enjoy travel in our retirement and pay our medical and care bills until we die.

Our "inheritance" to our kids is their college education and not having to place undue burden on them as we age. If there is anything left over when we pass, then that's just icing on the cake but I want them to get it and not Uncle Sam. Hopefully their education will enable them to stand on their own without requiring an inheritance.

 

[VacationForever]

My understanding is that this 10 year limit is for the heirs who inherit. Not the retiree.

That is also my understanding. Our plan has been to leave money in our IRA as much as we can by only taking TMD amount and leave for my son to withdraw RMD over his lifetime. My son has his challenges and every bit we leave for him will help him tremendously.

 

[Talent312]

Our plan has been to leave money in our IRA as much as we can by only taking RMD amount and leave for my son to withdraw RMD over his lifetime. My son has his challenges and every bit we leave for him will help him tremendously.

But under the proposed rules, he'd have to WD it all in 10 years, could mean a substantial tax burden. One idea for a workaround: Make your estate the beneficiary and pour it into a trust.
.

 

[VacationForever]

But under the proposed rules, he'd have to WD it all in 10 years, could mean a substantial tax burden. One idea for a workaround: Make your estate the beneficiary and pour it into a trust.
.

Pouring it into a trust means immediate 100% distribution.

 

[pedro47]

Pouring it into a trust means immediate 100% distribution.

Are you sure about this because that would be a heavy tax burden.

 

[VacationForever]

Are you sure about this because that would be a heavy tax burden.

One hundred percent sure. Hence never make a trust a beneficiary of an IRA account.

 

[geekette]

you could take it out in dribs and drabs and put into a regular brokerage account which he could use until depleted, no time limit. Or, as recommended, funnel to a trust where he is bennie, no tax shelter rules.

having to take money out of an IRA is not the same as having to spend it. I don't think it is tragic to have to remove money from an Individual Retirement Account if you weren't that Individual. The money doesn't vaporize, it just comes out of tax shelter. I see no problem with inherited IRAs only being allowed to go on for so long. Presumably, persons wishing to leave inheritance have more than tax shelters to pass along. That is of course the way to avoid rules about inherited IRAs.

Gets complicated to figure out how to look out for a loved one from beyond, but perhaps finding the right fi advisor to assist when you no longer can? I have nothing like this situation but very interested in what your plan ends up looking like. Smart people find a way, and that is absolutely you, Vaca.

 

[VacationForever]

Thanks, @geekette Putting a trust as beneficiary of IRA is no-no because 100% of that will be taxable right away. We will just have to live with the 10-year withdrawal for inherited IRA if this bill is passed. It is also my intention to leave a chunk of taxable investments as inheritance and since cost basis will reset upon my death, it is nice that my son will not need to pay capital gains on the account at the point of my passing. Current rules of inherited IRA is nice because it is almost like a safeguard that he will never run out of money, no matter how small it will dwindle to with each year's RMD.

 

[klpca]

Thanks, @geekette Putting a trust as beneficiary of IRA is no-no because 100% of that will be taxable right away. We will just have to live with the 10-year withdrawal for inherited IRA if this bill is passed. It is also my intention to leave a chunk of taxable investments as inheritance and since cost basis will reset upon my death, it is nice that my son will not need to pay capital gains on the account at the point of my passing. Current rules of inherited IRA is nice because it is almost like a safeguard that he will never run out of money, no matter how small it can dwindle to with each year's RMD.

But can't a beneficiary take out as much as they want, when they want? I am pretty sure that I saw someone plow through their inherited IRA in about 3 years, although it was quite awhile ago.

 

[VacationForever]

But can't a beneficiary take out as much as they want, when they want? I am pretty sure that I saw someone plow through their inherited IRA in about 3 years, although it was quite awhile ago.

Not for IRA. 100 percent withdrawal and taxed as income if a trust is named.

 

[klpca]

Not for IRA. 100 percent withdrawal and taxed as income if a trust is named.

Agree about the IRA. I just meant that I thought that a designated beneficiary can decide to withdraw more than an RMD if they want. I can't remember the exact circumstances but the mom of an acquaintance passed away and if I recall correctly, the acquaintance went on a bit of a spending spree and drained the entire inherited IRA in just a few years. It definitely raised some eyebrows in our circle of frugal spenders, lol.

 

[VacationForever]

Agree about the IRA. I just meant that I thought that a designated beneficiary can decide to withdraw more than an RMD if they want. I can't remember the exact circumstances but the mom of an acquaintance passed away and if I recall correctly, the acquaintance went on a bit of a spending spree and drained the entire inherited IRA in just a few years. It definitely raised some eyebrows in our circle of frugal spenders, lol.

A named non-trust non-spouse beneficiary can take 1 chunk in each year not exceeding 5 years or use the RMD table for the beneficiary through his/her lifetime or shorter.