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And there goes the Stretch IRA??

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  • Avatar FIREshrink 
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    Sure this is a tax on the “rich” and as such very popular. Surprised to see WCI at the head of the posse, pitchfork in hand. This is the sharp end of the spear. Eventually they’ll discover it’s more efficient simply to prohibit all contributions for you rich folks.

    Don’t say you weren’t warned.

    #229839 Reply
    Liked by EndoRobert
    Lordosis Lordosis 
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    Not gonna affect me, but definitely going to affect my kids, but they’re spoiled. Not in the “silver spoons” kind of way but probably similarly to the kids in the same small cohort. It’s not money they earned, and I’m dead so I won’t care.

    Question, if you win the lottery, don’t most take the lump sum/and the tax hit vs annuitizing it over 20 years. Certainly if there was an option to defer the prize winnings for a lifetime(and the taxes), how many would opt to treat that windfall in that manner?

    Click to expand…

    Depending on the size of the lottery the 20 year annuity might max out your tax bracket as well.  And you run the risk/reward of taxes going up/down in the future.

    I also bet the lotto participation of this forum is low.

    “Never let your sense of morals prevent you from doing what is right.”

    #229841 Reply
    Lordosis Lordosis 
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    Sure this is a tax on the “rich” and as such very popular. Surprised to see WCI at the head of the posse, pitchfork in hand. This is the sharp end of the spear. Eventually they’ll discover it’s more efficient simply to prohibit all contributions for you rich folks.

    Don’t say you weren’t warned.

    Click to expand…

    I found a bunch of my old childhood books including  “If you give a Mouse a Cookie”  which I now read to my kids.

    Important lessons to learn.

    “Never let your sense of morals prevent you from doing what is right.”

    #229844 Reply
    The White Coat Investor The White Coat Investor 
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    Joined: 05/13/2011

    As I’m reading this thread I just received a review copy of James Lange’s Retirement Plan Owner’s Guide to Beating the New Death Tax via overnight FedEx.

    You might want to check it out if you care about this topic.

    I’m not sure why you guys are accusing me of being at the head of the posse. I’m all for the stretch IRA. I’m just pointing out that this isn’t a huge deal. It’s pretty minor in the grand scheme of things. It’s not going to raise much tax money and it’s not going to hurt very many people.

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #229845 Reply
    Lordosis Lordosis 
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    As I’m reading this thread I just received a review copy of James Lange’s Retirement Plan Owner’s Guide to Beating the New Death Tax via overnight FedEx.

    You might want to check it out if you care about this topic.

    I’m not sure why you guys are accusing me of being at the head of the posse. I’m all for the stretch IRA. I’m just pointing out that this isn’t a huge deal. It’s pretty minor in the grand scheme of things. It’s not going to raise much tax money and it’s not going to hurt very many people.

    Click to expand…

    I think the idea of the stretch IRA is better then the IRA itself.

    We like to think we will amass a great fortune that our heirs will live off of and praise us for over the next century.  Where chances are it will be watered down, mismanaged, and spent as soon as someone wants a boat or future hover car.

     

    “Never let your sense of morals prevent you from doing what is right.”

    #229846 Reply
    Liked by Roentgen
    Vagabond MD Vagabond MD 
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    As I’m reading this thread I just received a review copy of James Lange’s Retirement Plan Owner’s Guide to Beating the New Death Tax via overnight FedEx.

    You might want to check it out if you care about this topic.

    I’m not sure why you guys are accusing me of being at the head of the posse. I’m all for the stretch IRA. I’m just pointing out that this isn’t a huge deal. It’s pretty minor in the grand scheme of things. It’s not going to raise much tax money and it’s not going to hurt very many people.

    Click to expand…

    Up until a few years ago, I was under the assumption that when I inherited the IRA, I would have to pay income tax on it, all of it at once. Imagine how happy and relieved I was that I could stretch it. Even five or ten years is better than having to take it all at once. I agree that it is far from the end of the world and mostly a wealthy person’s “problem”. (Imagine how upset Mitt Romney’s heirs will be.)

    "Wealth is the slave of the wise man and the master of the fool.” -Seneca the Younger

    #229849 Reply
    Liked by ITEngineer
    Avatar FIREshrink 
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    Politicians have clearly overestimated the sophistication of the American taxpayer.

    #229854 Reply
    Avatar burritos 
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    Sure this is a tax on the “rich” and as such very popular. Surprised to see WCI at the head of the posse, pitchfork in hand. This is the sharp end of the spear. Eventually they’ll discover it’s more efficient simply to prohibit all contributions for you rich folks.

    Don’t say you weren’t warned.

    Click to expand…

    Ever since I changed my status as in independent contractor to W-2, I no longer can fund/deduct my SEP IRA. I was anxious about losing this deduction. But now instead I just fund a taxable account. I don’t feel like my life has changed. I’ll eventually have to pay taxes on the gain, but it’ll only be on the gain as opposed to my retirement accounts(except roth) where I’ll have to pay taxes on the whole chimichanga.

    #229860 Reply
    Avatar FIREshrink 
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    Status: Physician
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    Do you not use your 401k or 403b?

    Yes, you may be right that taxable is a better decision going forward. Do you understand how that turns thirty plus years of retirement planning on its head?

    A married couple earning $120k per year and contributing 15% for thirty years can easily end up with a $2.5 million IRA at death – and it can easily be much more. That income will now be forcibly taxed at higher rates to the heirs than when it was earned and first deferred. Oops.

    This is legislation that reinforces the pathetic mentality of financial powerlessness and helplessness that has infected America.

    #229864 Reply
    Liked by Roentgen, Hank
    Avatar G 
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    A married couple earning $120k per year and contributing 15% for thirty years can easily end up with a $2.5 million IRA at death – and it can easily be much more. That income will now be forcibly taxed at higher rates to the heirs than when it was earned and first deferred. Oops.

    This is legislation that reinforces the pathetic mentality of financial powerlessness and helplessness that has infected America.

    Click to expand…

    fireshrink, I don’t disagree with you, but I would point out that around 1/3 of my patients want me to write an rx for their tylenol because their free medicaid picks up the tab and another 1/5 ask me how they can possibly afford a medication off of the walmart $4 list.  the roughly 1/5 with private insurance–who are in fact funding the entire healthcare house of cards–don’t have much left over to build up an IRA like that.

    if I had more any faith in our government’s competence, I would say it is a well crafted, under the radar scheme to take money from those that are, in fact, not infected by powerlessness/helplessness aside from being an anomaly in that they have something to take.

    the not so clandestine plan will be when they go after earnings in RIRAs for any balance over $X….

    #229872 Reply
    Avatar burritos 
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    Status: Physician
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    Do you not use your 401k or 403b?

    Yes, you may be right that taxable is a better decision going forward. Do you understand how that turns thirty plus years of retirement planning on its head?

    A married couple earning $120k per year and contributing 15% for thirty years can easily end up with a $2.5 million IRA at death – and it can easily be much more. That income will now be forcibly taxed at higher rates to the heirs than when it was earned and first deferred. Oops.

    This is legislation that reinforces the pathetic mentality of financial powerlessness and helplessness that has infected America.

    Click to expand…

    I work in a small private office. We have no 401k/403B. I did a SEP for 20 years. Now I can’t.

    If everyone who could amass 2.5 million dollar did, would this be a good thing? I think there’d be significant inflation. In a world of finite things/goods/services, it’s not always how much you have, but the delta between you and your peers.

    #229876 Reply
    The White Coat Investor The White Coat Investor 
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    Joined: 05/13/2011

    This really isn’t all the different from RMDs. Some people have enough money that they don’t actually want to spend their RMDs, so they basically take them out of the IRA, give the government its share, and reinvest the rest in a taxable account. So your heir can stretch your IRA for 10 years after your death, then take the rest out, pay the taxes, reinvest it in taxable and take 2% out for decades afterward. No big deal.

    Yet I see everyone —–ing and moaning about losing the Stretch IRA and nobody rejoicing about having the RMD date pushed back a couple of years.

    You’d think nobody actually wanted to spend the money they’ve been saving and investing for so long.

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #229947 Reply
    Avatar FIREshrink 
    Participant
    Status: Physician
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    Joined: 01/11/2017

    It’s very different. Compressed withdrawals result in higher tax rates. The later RMD is almost a trap: it means my heirs may potentially have even more money in an IRA which is later forced out at higher tax rates. If anything, elimination of the stretch means I need to be making earlier and larger conversions to Roths, and engaging in charitable trust and QCD planning. I may contribute less to a 403b in the first place; and certainly would want to put low return assets there (bonds) rather than stocks.

    It’s not that I’m in favor of dynasty IRAs or some kind of perpetual RMD. I would have no problem, for example, if heirs had to continue to withdraw at the decedent’s RMD rate: there’s a logic to that, and in some cases it would even be less than ten years. But if my mom dies young, at 60, and leaves me $1,000,000 through scrimping and hard work, and now I have to add $100,000 per year to my taxable income for a decade, I likely would have been better off had she taken the money as taxable income and invested in a taxable account. Furthermore the family never benefitted from the implicit promise of lower tax rates on withdrawal; nor the explicit promise of RMDs starting at 3.x% at age 70. No money was ever withdrawn, and now we have jumped up to 10% RMDs, boom. Not the promise made.

    #229953 Reply
    Avatar Tim 
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    Status: Accountant
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    Joined: 09/18/2018

    For some, saving is about retirement first and then family.
    For others, it’s about retirement and spending.
    For all the value placed on tax deferrals, taxes matter when it comes to family. Big difference in ten years and potentially life expectancy tables.
    From a tax standpoint, inheriting a $1mm house is better than an IRA. Feels funny saying that. Rules have changed. But a doctors house instead of 401k rolled into an IRA. Weird estate and retirement savings wrinkle. Pay the tax and buy a big house to get the gains tax free.
    Hmmm.

    #229984 Reply
    Liked by FIREchief
    FIREchief FIREchief 
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    Yet I see everyone —–ing and moaning about losing the Stretch IRA and nobody rejoicing about having the RMD date pushed back a couple of years.

    You’d think nobody actually wanted to spend the money they’ve been saving and investing for so long.

    Click to expand…

    Just a pet peeve, but I’ll point out that half of the people will get their RBD pushed back one year and half will get it pushed back two years.  I’m in the one year camp (i.e. birthday after June 30), so it is just one year of “gained” RMD freedom in exchange for potentially decades of “lost” stretch for my heirs.  It is a big deal.

    Ironically, I really don’t want to spend all the money I’ve been saving and investing for so long.  If I spend it all, it likely means DW and I have lived to an advanced age and encountered significant needs for assisted living and SNF along the way.  I would rather skip that and help out my kids.

    I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

    #230023 Reply
    Liked by Tim

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