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SECURE Act – WE NEED TO ACT

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  • Avatar Tim 
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    @lordosis,
    Just how many kids are you going to have?
    Seems like the tax tail has a big impact, more than even a NWM advisor would recommend for more WLI policies.
    It does make sense for the RMD’s. Just math?

    #225029 Reply
    Liked by Vagabond MD
    Avatar jhwkr542 
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    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?

    Click to expand…

    I think this is incorrect. I’ve attached the file regarding provisions of the bill. It simply refers to them as IRAs. Here’s a Forbes article that affirms this (and blasts the bill): https://www.forbes.com/sites/jlange/2019/06/11/the-hidden-money-grab-in-the-secure-act/#293160c3bbd7

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    #225041 Reply
    Avatar GasFIRE 
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    One current estate planning technique is to put inherited IRAs into qualified trusts. Not to hijack this thread, but assuming some form of this act passes, what are some alternatives if the stretch IRA is limited. This seems like the full employment act for estate attorneys.

    #225160 Reply
    jfoxcpacfp jfoxcpacfp 
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    One current estate planning technique is to put inherited IRAs into qualified trusts. Not to hijack this thread, but assuming some form of this act passes, what are some alternatives if the stretch IRA is limited. This seems like the full employment act for estate attorneys.

    Click to expand…

    This is very tricky and needs to be planned with much care. They cannot be “put” into qualified trusts – the trust must be named the beneficiary in the IRA plan document. As far as the stretch provision, this would be affected with the use of trusts, same as with the use of individuals, at least as I understand it.

     

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

    #225162 Reply
    Avatar Tim 
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    Maybe a Criminal Attorney? Not sure if prosecution or defense is the right choice. Somebody is getting screwed. I keep looking round the poker table and can’t find the sucker. Must be me!

    #225220 Reply
    Liked by jhwkr542
    Avatar SLC OB 
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    Just how many kids are you going to have?

    Click to expand…

    He’s already got like 4 under the age of 5, I think!

     

    #225319 Reply
    Lordosis Lordosis 
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    Earnest refinancing bonus
    Just how many kids are you going to have? 

    Click to expand…

    He’s already got like 4 under the age of 5, I think!

     

    Click to expand…

    Correct but now my oldest is 5!

    I was just thinking if I end up with 6-8 grand kids which seems like a possibility that is 10-12 heirs already.  If I am blessed with great grand kids then we can get to even bigger numbers.  But I figure I am never going to have a portfolio that after being split 10 ways will have that dramatic an impact of any one persons life.

    It is hard to speculate this far into the future since there are so many unknowns.

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

    #225447 Reply
    Avatar FIREshrink 
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    Simple math.

    A married couple making $120k together ($60k each) saves 15% of their income or $18k per year for 30 years. They are in the 22% tax bracket.

    Their investments earn 7% after inflation. They end up with $1,754,000 in real dollars.

    They retire at 65 and receive SS of $30k per year. They withdraw 3% per year from their retirement funds for another $53k per year so they are living on $83k per year, similar to what they lived on while working. They pay marginal tax rates on this income, rather than more favorable long term capital gains tax rates.

    They die 20 years later, and in all likelihood their portfolio is worth more than it was when they retired. Let’s say it is worth $2,500,000 in real terms. It could be worth a lot more.

    Their children, now 55, are in the primes of their careers. They are married and each couple is earning $120k in real terms. They are in the 22% tax bracket.

    Now they inherit $1,250,000 each. They have 5 years to withdraw it. That is additional income of $250k each, per year, for five years.

    Add the $250k to the $120k and they are now most likely in the 32% tax bracket. And most of that IRA money is taxed at 24% or 32%.

    The result is that the parents deferred tax at 22% per year, and their children are paying tax at 24% or 32% per year.

    This is an incredibly stupid proposal with all kinds of unintended consequences.

    #225456 Reply
    Avatar Tim 
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    @lordosis,
    I once had an employee that worked for me. High energy go getter during the interview process. Have you ever noticed that sometimes yawning and low energy seems to follow some folks you work with around. I broached the topic that we might consider having a family cookout in the summer. No, no, no, no but thanks anyway. He smiled and shared with me that he had 13 kids. It’s not fair to a host to subject them to two carloads of potential disaster. So, the challenge is 13! You can do it !
    https://media3.giphy.com/media/zPFcvdy9GWc4E/giphy.gif?cid=19f5b51a5d140c9477556568773d4267&rid=giphy.gif

    #225652 Reply
    Avatar GasFIRE 
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    This is an incredibly stupid proposal with all kinds of unintended consequences.

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    I agree that it’s a stupid proposal but I don’t think the consequences are unintended. For a non-spousal inherited IRA, limiting the stretch to 10 years quite effectively accelerates Uncle Sam’s access to the IRA tax revenue. Assume the inherited IRA is distributed evenly at 10% per year for 10 years (ignoring IRA investment returns) after your death. Per the IRS RMD worksheet, your RMD wouldn’t reach that 10% level until you’re 93 years old! With an average life expectancy in this country around 78 years, this looks like a blatant money grab. It appears that our politicians and government actuaries are trying to use Sutton’s law against us.

    #225667 Reply
    Avatar FIREshrink 
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    The unintended consequences might include avoiding 401k investing altogether, accelerating Roth conversions, annuitization, expanded use of charitable remainder trusts with IRAs, etc. Maybe altogether novel strategies. Certainly in the above example, taking money taxable now and investing in tax efficient long term investments which benefit from the stepped up basis upon my death is potentially more attractive than dumping money into an IRA which will likely have a forced short term distribution at a time completely out of my/my heirs’ control. Eventually perhaps the stepped up basis goes away, which from an equity standpoint I have no problem with but from a logistical standpoint would be a nightmare.

    #225690 Reply
    Liked by G, GasFIRE
    Avatar G 
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    Maybe altogether novel strategies.

    Click to expand…

    exaggerated winkie face….

    #225704 Reply
    Liked by Tim
    triad triad 
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    I think a very small percentage of people take advantage of a stretch IRA.  this is the sort of tax loophole that should be eliminated.  the purpose of the IRA is to help you save for your retirement, not create a tax shelter that can stretch over generations.

    #225811 Reply
    Liked by MaxPower
    FIREchief FIREchief 
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    One current estate planning technique is to put inherited IRAs into qualified trusts. Not to hijack this thread, but assuming some form of this act passes, what are some alternatives if the stretch IRA is limited. This seems like the full employment act for estate attorneys.

    Click to expand…

    Naming qualified accumulation trusts as beneficiaries of qualified assets will likely still be highly desirable from an asset protection standpoint.  The logical response to a legislative change that reduces the stretch is to aggressively convert tIRA assets to Roth assets during the lifetime of the original owner.  While the accelerated RMDs would also be detrimental to the tax advantages of an inherited Roth, the lack of immediate taxes upon withdrawal would enable the assets to be retained within a trust owned after-tax account for further tax deferral of growth and favorable tax treatment of qualified dividends.  Even if dividends were to be annually distributed to the beneficiaries (either all or a portion), the tax implications would be greatly reduced.  See my signature.

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

    #225871 Reply
    Liked by GasFIRE
    FIREchief FIREchief 
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    Joined: 12/10/2017

    I think a very small percentage of people take advantage of a stretch IRA.  this is the sort of tax loophole that should be eliminated.  the purpose of the IRA is to help you save for your retirement, not create a tax shelter that can stretch over generations.

    Click to expand…

    The stretch is not a “loophole.”  It has always been one of the carrots used to entice us to aggressively save for future retirements (both our own and those of our heirs).  A fair approach would be to eliminate the stretch only for future contributions, not to pull a bait and switch on those who have played by the rules.

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

    #225874 Reply

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