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  • Secure is Here

    https://docs.house.gov/meetings/WM/W...116HR___ih.pdf
    https://finance.yahoo.com/news/how-w...183211932.html

    Noted a dew funny tweaks never mentioned,
    • "Nothing in this subsection shall be construed 10to require a fiduciary to select the lowest cost con-11tract. A fiduciary may consider the value of a con-12tract, including features and benefits of the contract 13and attributes of the insurer (including, without lim-14itation, the insurer’s financial strength) in conjunc-15
      tion with the cost of the contract.
    • Some exemptions exist for organized labor agreements as well. I wonder how that happened?
    • Good to go the coast is clear. Hunting season is open for annuity contracts.
    I'll let one of the IRS code folks figure out exactly which IRA/401k accounts it applies to with all the legal cross referencing in the code. It is 10 years.


  • #2
    Yep:
    https://www.wsj.com/articles/inherit...dVH7TmG1_z_gLA

    That's exactly what the gov and insurance companies wanted. Plenty of people read the WSJ. Look at one of the recommendations to do now that the stretch has been eliminated: buy life insurance! Geez, however did that of all things become a good solution?

    Comment


    • #3
      Gifting to your children (if you are so inclined) may take some turns if RMD's impact estate planning goals.
      Now if YOU are the beneficiary you may want to consider having a talk with your parents if they are the owners are in lower marginal tax rates than the beneficiaries, let the calculations begin. Inherited Roth flavors also have RMD's, the tax free growth is not forever. WCI is probably correct, I doubt any lobbyists were pushing for a Roth exemption.
      MOM, you need to send my the "gift" to fund my retirement plan. Taxes are killing me, they don't amount to a hill of beans. Dad left you everything ONLY because of the 10 year rule! WCI was most probably right. Maybe just the IRA was wishful thinking. Happens alot. Do these rules apply to my retirement plan?
      These minimum distribution rules apply to:


      • traditional IRAs
      • SEP IRAs
      • SIMPLE IRAs
      • 401(k) plans
      • 403(b) plans
      • 457(b) plans
      • profit sharing plans
      • other defined contribution plans

      Comment


      • #4
        What are the implications of the IRA distribution rules now?

        Roth IRA inherited by my daughter. She's required to take distributions within 10 years. Is her only tax liability 10% penalty for early withdrawal if she's <59.5 years of age?

        Traditional IRA inherited by my daughter. Is her tax liability normal tax + 10% penalty if she's <59.5 years of age?

        Comment


        • SLC OB
          SLC OB commented
          Editing a comment
          I do not believe the age rule applies to Inherited IRAs. They would just pay the taxes (if non-Roth).

        • Tim
          Tim commented
          Editing a comment
          Guess, inherited RMD's are required before 59.5 and have zero penalty. I cannot imagine they would put in a penalty. Just a guess

      • #5
        Beyond inter-generational wealth transfer, if charitable giving is part of your plan this is a good article to read:

        https://www.forbes.com/sites/leonlab.../#516249346fbf

        I've already paired a DAF contribution with a Roth conversion earlier this year prior to the SECURE Act passing. To the extent possible, I plan to pair future contributions with Roth conversions as SECURE now makes this technique even more valuable.

        Comment


        • #6
          Just a point: The new law is effective after 12/31/19. So if you want to do something under the old law, better get busy! No grandfathering!
          The actual legislation is difficult to piece together.
          Question for all those with I-401k's:
          Are you prepared to annually issues the required disclosure: This is what you can receive as an Annuity. Seems that that is one of the big goals of the insurance companies. Each year put in front the option of "locking in" the fixed payment amount.


          Comment


          • #7
            Originally posted by Tim View Post
            Guess, inherited RMD's are required before 59.5 and have zero penalty. I cannot imagine they would put in a penalty. Just a guess
            This has the same info as the IRS site but in clearer conversational English:
            https://www.fidelity.com/viewpoints/...non-spouse-IRA

            No 10% penalty before 59 1/2 for inherited IRAs.
            ​​​​

            Comment


            • Tim
              Tim commented
              Editing a comment
              1/25/18 on Fido. The question is on the new bill. That advice expires in 9 days. Just saying, the text of the code is tough to figure out.
              That's why I included the marked up bill.

          • #8
            Originally posted by Tim View Post
            1/25/18 on Fido. The question is on the new bill. That advice expires in 9 days. Just saying, the text of the code is tough to figure out.
            That's why I included the marked up bill.
            I understand your concern, but a change like that would be an additional discrete penalty from the present rules, not the hidden tax increase from eliminating the stretch. Since every major financial media outlet (not to mention many independent blogs) has done some report or opinion piece on what SECURE entails and how it changes from the current system, at least one of them would have caught that by now wouldn't you think? While I am in no way an expert on legislative legalese, the applicable section Title IV - Revenue Provisions uses terms like "is amended by adding" or "shall apply by substituting". I didn't see any references to re-instating the 10% penalty on withdrawals prior to 59 1/2. I will be very interested in what Michael Kitces has to say. His promise from Kitces.com, "Stay tuned for a full in-depth analysis of the SECURE Act on Nerd’s Eye View coming this Monday December 23rd!"

            Comment


            • Tim
              Tim commented
              Editing a comment
              I do not expect an early withdrawal penalty on inherited IRA's. But then again, I didn't expect to lose the stretch. Never once did I see any mention for exceptions for plans that were "part of negotiated labor agreements". I guess a physicians contract might qualify!
              I can't read the code more than lookup a quote and read it.
              I read summaries and interpretations like you.

          • #9
            The only major “bad” outcome from SECURE is elimination of the stretch. But that’s a big baddie. Let’s talk about this.

            I don’t have a problem with disallowing the stretch - from an equity standpoint, it wasn’t justifiable that on the death of the original account owner, the beneficiary could have half a century or longer to avoid paying taxes. No, the problem I have is that the new rules may require acceleration of the previous RMD pace, depending on the age of the decedent - such that income is ‘squeezed’ out faster, and thus into a higher tax bracket, than would have been the case if the decedent had lived.

            It is easy to concoct a set of circumstances under which the decedent invested dutifully for many years while avoiding taxes in, say, the 24% tax bracket, then dies an unfortunate early death (say, age 72) when RMDs remain quite low. The non spousal heir is then required to withdraw all of a substantial account within ten years, which could easily be when the heir is at his peak earning years. 10% each year of a sizable inherited IRA could then push the heir into the 32%+ tax bracket. That is an 8% “bonus” the US Government (and possibly state governments) would otherwise not be entitled to.

            This could have been avoided, and much less objectionable from a fairness standpoint, if the provision had simply said that the heir could follow the ten year rule OR THE ORIGINAL RMD SCHEDULE, whichever was longer. The current RMD table shows for age 92 and above, the divisor is > 10, so for all decedents under that age, this would have allowed the heirs to maintain the current schedule. I realize that the entire rationale for eliminating this option was to generate more revenue, now, to offset the revenue losses from the other change of the SECURE act. But as today’s WSJ editorial observes, this seemingly minor provision upends many years of estate and retirement planning for millions of Americans. Not cool.

            So what to do about it?

            Obviously this makes Roths far more attractive, relatively speaking. You still have to weigh the various tax rates in play, but a Roth eliminates the worry that RMDs are taxed at artificially higher rates.

            It also seems to make HSAs even more attractive than they were before. The two hang ups with HSAs were 1. Taxable immediately upon death to a non-spousal heir and 2. Tax free withdrawals only for eligible health care expenses. Number 1 was a big disadvantage compared to a pretax account. Now pretax accounts only get a 10 year withdrawal window - making HSAs relatively less unattractive. Given their triple tax free status, I suspect most of us were already maxing those out.

            It seems this provision also makes it far wiser to have high expected return assets in taxable and Roth accounts, and low expected return assets in pretax accounts. Under current rules (subject to change), taxable accounts are stepped up upon death so having a million+ dollar otherwise taxable gain evaporate is pretty attractive.

            The issue of CRUTs is out there.

            I’m hesitant to do too much too soon because I could see Congress, depending on future political outcomes, revisiting this particular issue next year. As it becomes clear some ‘not really that rich’ people are being hurt by this, it may get a reprieve.

            Beyond any specific solution, this change also makes me very cynical about the future of both Roth accounts and the taxable step up. So I would be hesitant to to make any expensive (tax-paying) moves now while presuming that Roths will remain tax free forever and the step up in basis for taxable accounts will remain. I think Congress just showed they feel no compunction to pull the rug out from under savers/investors now or in the future. Caveat emptor.

            Comment


            • #10
              Originally posted by FIREshrink View Post
              The only major “bad” outcome from SECURE is elimination of the stretch. But that’s a big baddie. Let’s talk about this.
              Oh, I think allowing annuities to be sold within a 401(k) wrapper is another quite bad outcome.

              Comment


              • #11
                Originally posted by Hank View Post

                Oh, I think allowing annuities to be sold within a 401(k) wrapper is another quite bad outcome.
                Maybe I am dumb but what is the rationalization for that? Other then the bribing of congressmen?

                Comment


                • East coast
                  East coast commented
                  Editing a comment
                  More Options! Some may want annuities - hopefully for the same reason that every plan sponsor and their mother has been sued for high fees on funds over the last 5 yrs, the annuity options will be [relatively] reasonable going forward. For some folks that want that security, more power to them.

                • Tim
                  Tim commented
                  Editing a comment
                  " the annuity options will be [relatively] reasonable going forward. "
                  Really? I guess that's why they specifically put in "safe harbor protections".No more lawsuits! Now that that issue is settled, I am sure the upfront costs and penalties for getting out will be perfectly reasonable! Then pay 10% for withdrawing the funds. The target market for this product is much more susceptible liquidity issues.
                  No one says life is fair, the annuity game inside retirement accounts is rigged. It's difficult to get ANYONE to read a prospectus let alone an annuity contract filled with legal jargon. Some people want cigarettes, at least they put a disclosure requirement. This in no way is good for the vast majority of retirement savers.

              • #12
                FIREshrink
                Thank you for your eloquent interpretation. I agree that the "stretch" was very generous to say the least.
                "But as today’s WSJ editorial observes, this seemingly minor provision upends many years of estate and retirement planning for millions of Americans. Not cool."
                This statement is my primary point. Yes, you made one possible alternative suggestion. There are some good points in the act, opening up accounts to many that were unavailable. The process itself sucks!

                Comment


                • #13
                  https://www.forbes.com/sites/martins.../#1d6fa08710ff

                  If you already have an estate plan in place prior to SECURE now would be a good time to examine the provisions for the beneficiaries especially wrt IRAs and RMDs. Many plans use trusts for the beneficiaries to take advantage of the stretch RMD. New provisions for the beneficiaries may be in order although I’m going to wait a little until the dust settles before deciding how to proceed.

                  Comment


                  • #14
                    With me paying 18% effective tax rate in florida, I will be converting 50-100k/yearly
                    As a retiree that large ROTH account can serve as long term care insurance as well instead of paying the crazy premiums that are skyrocketing
                    If you have trusts for your kids, they need to be reviewed(not a lawyer am I)
                    love how our govt changes rules in the middle of the game
                    the non spouse who inherits an ira previously is taxed on the whole ira, but over their life, not 10yrs
                    Does the NON SPOUSE take the distribution yearly or wait till the end of the 10yrs? 10 years to wait if its a Roth

                    Comment


                    • #15
                      This act will produce 16 billion dollars through 2029. Its horrible for those like myself who amassed large IRAS
                      convert as much as you can or marry your child(joking)

                      Comment

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