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SECURE Act – WE NEED TO ACT

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  • Avatar Tim 
    Participant
    Status: Accountant
    Posts: 3275
    Joined: 09/18/2018

    Yes. Until they decide to change the tax rules on Roth IRA’s.
    The logic would be, gains haven’t been taxed. Soooo,
    now tax the gains, the wealthy need to pay taxes!
    All it takes is a new law. Changing the fundamental tax policy on retirement savings is “justified “ in and can be targeted. Roth, Tradition, or 401k. Selling annuities to a wider segment is the goal of the insurance lobby.
    No more, no less.
    Someone has to pay.

    #229485 Reply
    Avatar FIREshrink 
    Participant
    Status: Physician
    Posts: 1026
    Joined: 01/11/2017

    Yes Roths are vastly more attractive under the new legislation.

    #229491 Reply
    FIREchief FIREchief 
    Participant
    Status: Other Professional
    Posts: 48
    Joined: 12/10/2017

    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?

    Click to expand…

    The RMD from an inherited Roth would have zero taxable income.  It could be invested in efficient after-tax equity funds so as to further defer taxes on growth for many years after.  Doing this within a properly drafted qualified trust would add significant asset protection.

    To answer your question, yes this may further expand the case for Roth conversions.  Washington should be fine with this in the near term because Roth conversions generate a lot of ordinary income.  However, as Tim correctly pointed out, all of this could be changed (i.e. screwed up) by more shenanigans out of our elected representatives.

    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.

    #229630 Reply

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