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SECURE Act – WE NEED TO ACT

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  • jfoxcpacfp jfoxcpacfp 
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    The below message was posted yesterday on NAPFA’s All Member Open Forum by Rick Kahler, one of the giants in our profession. Red text emphasis added, but Sen. Rounds’ comments are very surprising. Please contact your Senators (see link below) and encourage your family, colleagues, patients, etc. to do the same:

    >>I received a call from Senator Mike Rounds’ office asking me about the SECURE Act yesterday. I had written a column that ran in some local papers and that was picked up by Forbes and Fox Business that was critical of the act,  specifically of the eliminating of the stretch provisions for inherited IRAs and allowing annuities to be sold to 401ks.

    He asked me how common it is that adult children receive an IRA. I think the assumption of the drafters were that parents deplete IRAs and there is little left to pass on. He also inquired if their was really any difference in paying the taxes in 5 years vs spread over decades.  I told him it was really common, that most of my clients don’t deplete their IRAs, and forcing adult children to take distributions of the entire IRA in the peak of their earning years would be a significant depletion of the value over the current structure.
    He indicated I was the only person they know that was critical of the act, that the Act is getting broad support.  I suggested the reason is that the general public has no clue about the elimination of the IRA stretch  provisions. 
    He indicated there is no specific timeline for passage.  If you don’t support this bill you could make a difference by calling your Senator’s office on Monday. Here is the link to my article:

    https://kahlerfinancial.com/financial-awakenings/tax-planning/the-secure-act-and-your-retirement-accounts

    Best Regards,

    Rick Kahler, MSFP, ChFC, CFP®
    A NAPFA Registered Financial Advisor<<
    The new thread, SECURE Act, that @snowcanyon just posted reminded me that I had read this earlier today. Rather than post below his/her article, I thought this warranted a new thread to get added attention. I plan to bump if this does not generate comments.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #224370 Reply
    Liked by Tim
    Avatar snowcanyon 
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    Status: Physician
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    Haha! SNAP!

    Nice article. At least the act is getting some bad press, finally. But looks like it will go through.

    #224378 Reply
    Liked by Zaphod, jfoxcpacfp
    jfoxcpacfp jfoxcpacfp 
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    Bump (if you’re interested in preserving the stretch provision!)

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #224653 Reply
    Liked by Tim
    GOAT GOAT 
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    Status: Physician
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    Thanks for your article, Rick.  I stumbled across it on the internet after hearing about the SECURE ACT and the potential (or likely) loss of the the stretch IRA.  I have been counting on the ability of passing on sizable Roth IRAs and 401Ks to my kids via IRA Inheritance Trusts.  I feel robbed!  At the very least the rug is being pulled out from under us.

    The other provisions of the act I can stand behind, but it seems very devious to change the rules on the Roth to quietly increase tax revenue.  The only way they are able to get away with this is because most people don’t have a *@(&!&^ clue as to what the stretch is (even most of us high earners and savers).  As WCI pointed out the his post on Roth vs Traditional IRAs, those of us in our high income years are usually going to be better off using the tax deferred Traditional IRA.  However, I am intentionally choosing to pay the taxes now so that my heirs can use the tax free stretch over time….that was the deal.  By putting the IRAs in trust, I can be sure they don’t blow the stretch by pulling the money out and losing out on the tax free growth.  Now, as your graph points out, they will have to pull the money out in 5 to 10 years after my and my wife’s death only to have to pay taxes on it again!  What gives?!  I work hard, pay my taxes on time, only to be taxed again?

    Are there solutions out there?  Are there solutions being developed?  I don’t like the idea of using life insurance to try to accomplish the stretch because as WCI points out over and over, insurance shouldn’t be used for investing (high costs, bad options, poor returns, etc).  We all know the problems of whole life insurance.  Charitable Remainder Trusts (CRTs) (as good as they are in encouraging charity) are also being floated as solutions, but unfortunately heirs would loose out on the principle.  I’m really interested to know of other solutions if anyone knows of them.

    Thanks!

    #224957 Reply
    Liked by Tim
    Avatar Tim 
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    Effective communication:
    Telephone
    Mail
    Electronic message on Senator’s goverment website

    Does anyone know which is more effective?

    #224970 Reply
    Avatar G 
    Participant
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    Tim, In order of effectiveness, per data from our lobbying consultant:

    Personal visit
    Letter
    Telephone
    Email

    #224972 Reply
    Vagabond MD Vagabond MD 
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    I certainly stand to lose as both a likely recipient of a inherited IRA and one whose children will likely inherit wealth from my/our assets in an IRA in the hopefully distant future. This seems to be mostly a wealthy person’s problem, however, and while I certainly would support defeating it (would write letters to Senators), I am struggling to articulate an argument that does not make me sound like a wealthy person whining about paying taxes, not wanting of pay his “fair share”, etc.

    Do you have a sample letter or some bullet points to communicate that does not make me sound like Leona Helmsley?

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

    #224974 Reply
    Liked by snowcanyon
    Avatar JBME 
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    speaking as someone who worked on the hill one summer many years ago, I agree G has the order right. But vagabond, you’re putting too much thought into it. Most congresspeople/senators read maybe a handful of letters before bed/right when they wake up in the morning, and it’s literally a handful. The chance yours will get read is 1% or less. Your call and/or letter/email is much more likely to be read by an intern or very junior front-desk staffperson. If the congressperson/senator is a good boss, he/she will occasionally query the intern/front-desk person (or the chief of staff will) to ask what the sentiment has been from constituents before voting on a particular bill. That might impact their vote

    #224983 Reply
    Avatar bean1970 
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    Status: Physician
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    we have “very little” in IRAs (and employer accounts)…77% of our NW is in a regular brokerage account. I don’t see changing the stretch provision as a game changer for our estate planning….

    #224990 Reply
    jfoxcpacfp jfoxcpacfp 
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    I certainly stand to lose as both a likely recipient of a inherited IRA and one whose children will likely inherit wealth from my/our assets in an IRA in the hopefully distant future. This seems to be mostly a wealthy person’s problem, however, and while I certainly would support defeating it (would write letters to Senators), I am struggling to articulate an argument that does not make me sound like a wealthy person whining about paying taxes, not wanting of pay his “fair share”, etc.

    Do you have a sample letter or some bullet points to communicate that does not make me sound like Leona Helmsley?

    Click to expand…

    A financial advisor posted her verbiage (she said she took some/most of it from Rick’s letter) on the forum:

    I am a Certified Financial Planner (R) and would like to express my strong disapproval for 2 features of the SECURE act.

    The first is the safe harbor provisions for annuities inside 401k plans. This is just an invitation for adding high expense annuities to plans.  Here is an article about annuities and 403(b) plans that describes some of the shortcomings: https://www.barrons.com/articles/the-annuity-trap-teachers-need-to-avoid-51558743092

    The second is the changes being proposed to distributions from inherited IRAs. Among the revenue enhancements are changes to the rules regarding distributions from inherited IRAs. Currently, the required withdrawals can be spread out over the life expectancy of the heir-which, of course, could extend for decades. The new bill would require most beneficiaries to take the money out and pay the taxes over a ten-year period. (The Senate version would require a five-year payout period for any inherited IRA over $450,000.) The bill would exempt inheriting spouses and minor children from the provision. This change will impact middle income households by forcing them to withdraw more funds potentially during their high earning years.

    Allowing more gradual withdrawal also increases the next generation’s retirement income security which is currently in an alarmingly poor shape.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #224992 Reply
    Liked by Zaphod
    Zaphod Zaphod 
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    The provision for annuities is the whole reason the bill was written, its one of the sponsors largest campaign donors. Just quid pro quo all around, with hundreds of millions of collateral.

    #224994 Reply
    Avatar NYCdoc 
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    Follow the money, just sayin’
    The bill was written/sponsored by Rep Richard Neal.
    https://www.opensecrets.org/members-of-congress/summary?cid=N00000153

    I contacted my senator. But I doubt it will make any changes in his vote. Even the media seem to be in love with it.

    #225003 Reply
    Liked by Zaphod, snowcanyon
    Avatar deeppizza 
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    Status: Physician
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    Joined: 09/30/2016

    My understanding was that the SECURE ACT was going to change the stretch IRA rules in terms of inherited traditional IRA‘s, but not Roth IRA’s. Is it true that this would affect inherited Roth IRA’s as well?

    #225009 Reply
    Lordosis Lordosis 
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    Status: Physician
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    If someone has a large pretax account when they pass can they split it up to multiple individuals to help lower the tax burden?

    1M taken over 5 years would hurt tax wise but 100K to 10 different people over 5 years might not be as bad.

    It would be nice if it was taxed at your marginal rate but not higher then X%.  Wishful thinking.

     

    Also would having 2 more years to do roth conversions make much of a difference?

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

    #225012 Reply
    Avatar Tim 
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    @bean1970,
    No answer needed, a thought for you to ponder.
    1) Because of the rules for pretax savings.have restrictions on amounts put in and taken out.
    2) Because of the rules for posttax savings have restrictions on amounts put in and taken out.

    The strategy on 1) is to allow stretching the RMD’s.
    The strategy on 2) is to allow step up in basis.

    Should things like stepup in basis, long-term capital gains be modified to equalize amounts taxed? Throw in the inheritance tax exemption as well. Apply it to real estate, stocks, and trusts. $11mm tax free for 2) or would you be in favor of : tax it all if it wasn’t a spouse?
    Land, stock, whatever the asset it wasn’t “earned” by the beneficiary.

    Over 50 years one cannot change past savings strategies, about the only way to equalize things is to tax it all upon one’s death.

    My point is, changing the rules retroactively is the problem. Behaviors will change. The target is wealth redistribution to fund annuities of the expanded numbers. Is that going to impact future generations?
    You betcha. More kids will become annuity salesman.
    Please note, eventually all assets will be attacked and annuities capped. Equality of results.

    #225017 Reply

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