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SECURE Act – WE NEED TO ACT

Home Retirement Accounts SECURE Act – WE NEED TO ACT

  • 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.

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    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.

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    the government should incentivize us to save for our own retirement (so they government doesn’t have to pay for it) but there is no reason for the govt to incentivize saving more then you need in retirement.  I’d rather have the tax revenue back in exchange for lower tax rates.  I agree that your approach would be the fair thing to do.

    #225879 Reply
    Liked by MaxPower
    FIREchief FIREchief 
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    the government should incentivize us to save for our own retirement (so they government doesn’t have to pay for it) but there is no reason for the govt to incentivize saving more then you need in retirement.  I’d rather have the tax revenue back in exchange for lower tax rates.  I agree that your approach would be the fair thing to do.
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    Therein lies the rub.  Most of us really don’t have any idea how much we’ll need in retirement.  Will we die next week or live to 100 with ten years of dementia?  Sure, our families can just put us in a Medicaid home after our assets are exhausted, but isn’t it better (for everybody – us, Uncle Sam and heirs) if we risk “over saving,” with the assurance (to this point) that any overages would benefit our heirs and not our poor Uncle?

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

    #225882 Reply
    triad triad 
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    the government should incentivize us to save for our own retirement (so they government doesn’t have to pay for it) but there is no reason for the govt to incentivize saving more then you need in retirement.  I’d rather have the tax revenue back in exchange for lower tax rates.  I agree that your approach would be the fair thing to do.
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    Therein lies the rub.  Most of us really don’t have any idea how much we’ll need in retirement.  Will we die next week or live to 100 with ten years of dementia?  Sure, our families can just put us in a Medicaid home after our assets are exhausted, but isn’t it better (for everybody – us, Uncle Sam and heirs) if we risk “over saving,” with the assurance (to this point) that any overages would benefit our heirs and not our poor Uncle?

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    Do you think ending stretch IRAs will cause people to undersave?  I don’t forsee that being a problem for anyone who would potentially use the stretch IRA.

    #225892 Reply
    FIREchief FIREchief 
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    Do you think ending stretch IRAs will cause people to undersave?  I don’t forsee that being a problem for anyone who would potentially use the stretch IRA.
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    That’s a good question.  I don’t have the answer.  My point is that decades ago Uncle Sam was concerned that people weren’t saving enough for their retirements.  So, he set up this shiny thing called an IRA, with an associated collection of restrictions and benefits, to encourage more saving.  Many people bought into the plan.  Some dipped their toes in, while others dove in head first.  Now he’s trying to remove some of the benefits while leaving all of the restrictions (i.e. earnings taxed at ordinary income tax rates, significant penalty for most withdrawals before 59  1/2, no stepped up basis) in place.

    For some, the answer to your question might be more money in after-tax equities and less in pre-tax tIRA.  It also might be more aggressive Roth conversions (which conveniently pads Uncle Sam’s wallet immediately).

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

    #225894 Reply
    triad triad 
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    For some, the answer to your question might be more money in after-tax equities and less in pre-tax tIRA. It also might be more aggressive Roth conversions (which conveniently pads Uncle Sam’s wallet immediately).

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    so the govt doesn’t have to fund their retirement and they get more tax revenue.  I don’t see a downside for the govt…

    #225900 Reply
    Liked by Tim
    Avatar FIREshrink 
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    The philosophical debate about how much is too much is not the point, though it obviously smacks of rank Communism.

    The issue is the forced liquidation at potentially higher tax brackets. This fundamentally alters the attractiveness of the vehicle. It’s like the downside of an HSA (forced liquidation on death of spouse) but without the upside of potentially tax free forever and with much larger dollars and thus much higher stakes.

    #225924 Reply
    FIREchief FIREchief 
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    medical school scholarship sponsor

    The philosophical debate about how much is too much is not the point, though it obviously smacks of rank Communism.

    The issue is the forced liquidation at potentially higher tax brackets. This fundamentally alters the attractiveness of the vehicle. It’s like the downside of an HSA (forced liquidation on death of spouse) but without the upside of potentially tax free forever and with much larger dollars and thus much higher stakes.

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    +1.  Of course, they haven’t changed the HSA rules mid-stream (yet….).

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

    #225925 Reply
    Avatar Tim 
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    the purpose of the IRA is to help you save for your retirement, not create a tax shelter that can stretch over generations.

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    I respect your opinion. The law as written was to allow IRA saving to be accumulated and pass on to your heirs with required minimum distributions.This was the purpose for 50 years. I mean, that was the law and that way folks would not run short by knowing the distributions would not result in HUGE tax penalties for heirs. That would have discouraged 401k and IRA savings. That was the “intent” of the law for 50 years. Saving was a good thing and taxes won’t penalize either you or your heirs.

    There were limits put on it to control the generational wealth. By the way, and Inherited IRA is subject to different rules. They clearly show the intent.The private pension system was a mess with pension funds under funded and abused by unions and companies. ERISA completely change the private retirement landscape. That was the purpose. Things like roll overs and contribution limits were fiercely debated. It was committed to paper and a set or rules and principles. Why are IRA’s limited to different contribution limits than 401k’s and but roll overs allowed. The was a specific purpose.

    There is a purpose for changing now. It’s not to prevent excessive wealth accumulation for generations. No offense intended. The “good part” was the law was not intended to favor any demographic or class and was designed to safeguard against abuses. It eliminated tax penalties for those that were frugal and saved for retirement. That is not a tax shelter, it was an incentive to save in retirement accounts.

    #225935 Reply
    Lordosis Lordosis 
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    @tim. Heck no 4 is enough fore me. We already do not get invited to anything. 😀

    I do not understand the connection with the waterboy gif

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

    #225980 Reply
    Avatar Tim 
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    You can do it!

    #225982 Reply
    Avatar Tim 
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    Status: Accountant
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    Joined: 09/18/2018

    “Do you think ending stretch IRAs will cause people to undersave?”

    Yes, but not in the manner implied. The investments after tax would become more attractive. Lower amounts potentially in different investments. Those choices were specifically restricted in the types of investments that were deemed as high risk inappropriate for retirement funds. Liquidation restrictions and some “guardrails “ that provided incentives to retain the funds for retirement purposes. Example, payoff the mortgage or keep the taxable account or buy a bigger house?
    When accumulating there is always the thought of “what happens if my wife and I both pass. The stretch RMD provided a relatively safe guideline for your heirs.
    The IRA /401k restrictions added value and the “what if” scenarios actually influenced one or two generations. Rollovers became 100% the right choice. Now, stepup in basis vs higher taxes definitely changes the emotions.
    Yes, I think savings would be lower because more would be outside of the “retirement bucket”.

    #226021 Reply
    GOAT GOAT 
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    I respect the argument over if it is right or wrong for families to accumulate wealth beyond the time span of retirement.  Some will side for spreading it out to society and some will side for multigenerational accumulation.  My two cents is to teach, encourage, and allow as many members of society to do it as possible.  Yes, I’m aware of the pitfalls of leaving large sums of money to heirs as described in The Millionaire Next Door and other opinions.  I’m convinced that if the appropriate values are taught along with the inheritance, the inheritance will not necessarily corrupt the heirs into bourgeoisie hedonistic chaos.

    Tax income once, be efficient with the tax revenue, and let money accumulate under the rules that have been established to encourage saving.

    As to possible solutions if this passes the Senate….

    1) Will South Dakota Dynasty Trusts avoid forced distribution and repeat taxation?  2) Does anyone know the costs of set up and maintenance on a South Dakota Dynasty Trust?  3) Are costs based on trust assets or are fixed fee options available? If so, by whom?

    Thanks

    #226409 Reply
    FIREchief FIREchief 
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    I respect the argument over if it is right or wrong for families to accumulate wealth beyond the time span of retirement.

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    It’s largely a meaningless argument, because nobody knows how much wealth they’ll need for retirement.  They don’t know what the markets will do.  They don’t know what Washington will do (hits close to this thread!).  They don’t know how long they’ll live.  They won’t know if they’ll need fifteen years of SNF or fifteen days.  Multiply most times two if they are married.  The only reasonable solution is to plan for the maximum financial needs.  Washington was encouraging this with the inherited IRA stretch to avoid the unintended consequence of a large tax penalty for early/healthy death.  Now they’re pulling the old switch-a-roo and suggesting that the unintended consequence is in fact what was originally used as an attractive feature.

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

    #226460 Reply
    Liked by GasFIRE, Tim
    Avatar FBN 
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    Status: Retired
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    Joined: 08/09/2018

    The national debt is $22 trillion. Add a couple hundred trillion more for unfunded liabilities.  The goal is to raise taxes but not call it a tax.  If the SECURE Act is passed as proposed then it makes a lot of sense to fund part of our retirement outside of qualified plans with tax efficient index funds and ETFS.  That way there are no RMDs and you can get the step up in basis (until that is outlawed which will happen).  This whole scenario makes a case for using just life insurance for legacy purposes and forget inherited IRAs. Tax free life insurance death benefits IMO will never go away because of the insurance industry lobbies that funnel millions into campaign donations to Congress.

    #226702 Reply
    Liked by Tim
    Avatar deeppizza 
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    Status: Physician
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    Joined: 09/30/2016

    I’m trying to wrap my head around how this would affect a Roth IRA.  If the beneficiary is non-spouse, I understand that it would need to be liquidated over a number of years as opposed to the life of the beneficiary.  I understand that the RMDs would increase taxable income at the end of the year, but this is money that’s already been taxed.  Plus, if you are already at the highest tax rate, the RMDs won’t push you any higher.  So in that situation, are you just getting forced to take out post-tax money, but without any implications on increasing your taxes?  If so, isn’t this more reason to perform Roth conversions?

    #229472 Reply

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